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What does it mean to earn foreign currency?

August 4, 2023

“The number of EL projects is increasing,” an executive at a machine tool builder told me. 

EL is an acronym for export license, a permit issued under the country’s Export Trade Control Order. In other words, exports of high-precision, high-end machine tools, known in Japan as “listed machinery,” the destinations of which are restricted to prevent diversion to the production of weapons and other items, are increasing. The export of high-value-added products can earn foreign exchange, which is a big plus for the Japanese economy. This reminds me of a European machine tool industry leader I recently interviewed who said, “I envy the Japanese machine tool builders who are able to take advantage of the weak yen, and they are a big threat to us.” Of course, a weaker yen is obviously more advantageous for export sales than for manufacturers in countries with stronger currencies.

Japan is a country with strong domestic demand to begin with. Because of its large population, the domestic economy alone can keep a large amount of money going. However, Japan cannot survive without importing energy and food. To buy them, Japan must first earn foreign exchange, and the only way to earn foreign exchange is to export products and services in which Japan has an advantage over other countries. The mainstay of these exports is the various manufacturing industries, and machine tools and industrial machinery are particularly favorable to Japan’s trade balance. Japan’s machinery industry is one of the best in the world, not only in terms of quality, but also in terms of its service attitude, no matter how strictly we look at it. It is a star performer that can earn foreign exchange, and there is no concern about its ability to do so. 

However, there is something that has been bothering me lately as I look at the international situation. It is the movement away from the U.S. dollar and away from Western culture. After two world wars, along with the Bretton Woods system, the transition to a floating exchange rate system, and the establishment of the petrodollar (the international practice of settling oil transactions in U.S. dollars), the U.S. dollar has become the one and only entity. And Western culture, backed by USD strength, led the world from the mid-20th century onward. The so-called developed countries, including Japan, fully enjoyed the benefits of Pax Americana (peace through U.S. hegemony). However, the clouds began to lift around the beginning of this century, when their economic growth rate began to reach a plateau. Since the main source of their appeal was not their values or principles, but their economic power, the honest thought of many countries would be, “The older generation’s time is up and can you please stop acting like a superpower forever?”. It would seem as if the bill for a history of imposing Western values all over the world is erupting. The symbolic move is the trend toward international transactions in currencies other than the U.S. dollar, or so-called “de-dollarization”. While it is difficult to imagine that the U.S. dollar will ever cease to be a reserve currency, its relative influence is gradually declining. When that happens, where will Japan’s position in the international economy be? Will Japan be able to secure its energy and food supplies? If Japan cannot secure enough foreign currency, the country will eventually freeze and starve. 

When I, almost 50 years old, was in elementary school, my social studies textbooks said very nice things like “omnidirectional diplomacy” and “added-profit trade”. I wonder if they are still in today’s textbooks. Even if the end of the Pax Americana has begun, it seems that a revival of these ideas is a key that Japan must not miss in order to swim through the world of confusion in the future. 

In any case, what the factory automation industry needs to do first is to continue to light a small path to Japan’s future by developing the industry itself. That’s the only thing we can do here, now 

Shu Yasumi, Editor-in-Chief 


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