The highly valued yen is driving Japanese companies to invest their capital worldwide. The effect that this is having in Asia is at least as significant as in the United States. Much of the competitive power of Japanese companies has stemmed from the long tradition of low-cost production in that country. Even today,the average real wages of Japanese workers are only about 65 percent of U.S. real wages, and Japanese workers put in many more hours a week and have far fewer paid holidays a year than North American workers. But with the yen almost doubling in value versus the dollar from 1985 to 1988, Japanese companies have been forced to seek other labor pools to maintain their hold on low-cost labor.
Labor costs are now even higher in Japan than in the United States.
The rise of the yen from around 230 per dollar in 1985 to 140 in September 1989, without affecting real wages in Japan, almost doubled money wages. As a result, Japanese capital in the manufacturing industry, particularly manufacturers of components for cars and electronics, has been pouring into Southeast Asia. At first Japanese corporations were able to find cheap labor in the Asian NICs. The revaluation of the South Korean won and the new Taiwan dollar, however, raised money wages in these countries and Japanese companies are again fleeing rising labor costs. Japanese companies are also turning to Southeast Asia as a platform from which they can grapple with the effects of the United States's huge trade deficit.