NEW CURRENCY PROBLEM SEEN AMONG U.S, EUROPE, JAPAN The highly visible drama involving the yen's sharp rise against the U.S. Dollar is obscuring the fact that the Japanese currency has hardly budged against major European currencies, thus creating a new set of exchange rate distortions, Japanese and European research officials said. The officials, looking beneath the rhetoric of statements by the Group of Five (G-5) industrial nations, told Reuters the currency movements of the past two years are also creating a fundamentally new world trade picture, which is throwing up new trade tensions and imbalances. Trade figures show that the new currency alignments are already changing the Japan-U.S. Trade axis into a Japan- European Community (EC) axis, to the discomfort of Europe. In many ways, not least in terms of rare international cooperation, the September, 1985 New York Plaza pact between the U.S., Japan, West Germany, Britain and France to cut down the value of the dollar was a historic one. But it is the underlying peaks and troughs of the major currency movements which lay bare the real picture, in which the Plaza pact appears as an event of prime importance, but not necessarily central significance, the officials said. The officials said that when the Plaza agreement took place, the dollar was already on its way down. The agreement simply helped it on its way. Senior EC financial expert in Tokyo Tomas de Hora has watched the movements closely. "You have to look at the dollar's peak compared with now, and that was well before Plaza," he said. On February 25, 1985, the dollar peaked against the yen at 263.15 yen. On September 20, the Friday before Plaza, it was 242. Since then, despite massive Bank of Japan intervention and periodic market frights about further G-5 concerted action, the dollar trend has been down, down, down. Yet the ECU is now around 173.4 yen. The historical cross rates for sterling and the mark tell much the same story. The European currencies are moving back up against the yen. The close relationship between exchange rates and trade flows makes it difficult to see which is driving which, but undoubtedly the trade equation between the big three is changing. In 1986, Japanese imports and exports with the EC both grew by around 50 pct in dollar terms, five pct in yen. This gave Japan a 16 billion dlr trade surplus. Last January, Japanese exports to the EC totalled half of of sales to the U.S, against about a third in recent years. Trade with the U.S in 1986 rose 23 pct for exports and 12 pct for imports in dollar terms, but fell 13 pct for exports and 21 pct for imports in yen terms. "The basic meaning for Europe is that Japanese firms have a tremendous interest in exporting to Europe, where every unit sold maximises profits in yen terms, which is what is important to them. Suddenly, instead of the U.S., It is Europe that is laying the golden egg," said de Hora. The EC is worried. EC business also had a remarkable year in Japanese sales, but this can be explained partly due to its start from a small base, compared with total Japan-U.S. Trade. The Japanese think EC firms are now more competitive than U.S. Firms, a factor which is aggravating the exchange rate imbalance, and which will cause problems. "This currency alignment between Japan and the EC is reflecting the excellent performance of the EC countries. But therefore, Japanese goods may keep their price competitive edge," said Azusa Hayashi, Director of the First International Economic Affairs Division of the Foreign Ministry. "If you want my objective view, I don't expect a drastic improvement in our trade imbalance. Last year, we asked for moderation in exports, and this year we may have to do so again," he said. REUTER...