Paying with Silk

From April, 1933, until last week, the Japanese yen was nailed to the prestigious British pound at the rate of one shilling twopence per yen though Japan's purchases from Britain were small potatoes and the U. S. far & away her best provider. When Europe's war sent the pound hopping around between $4.68 and $3.72 1/2, the yen hopped alongside, between 275/16-c- and 22 7/8-c- U. S. money. Last week the Japanese Cabinet decided that it would be simpler to clear on New York; that the pound-pegged yen, which happened to be at 23 1/2-c-, would henceforth be pegged to the U. S. dollar at 237/16-c-.

Meanwhile Britain's blockade of Germany cut off the goods which for the last year and a half have reached Japan under a very favorable arrangement by which Japan, without spending any of her mite-sized gold supply, got machinery, chemicals, etc. in return for some goods but mostly for bothering Britain in the East. These will now have to be bought mostly in the U. S., thereby enlarging Japan's already big import balance and the problem of paying for the war goods she needs.

> Ever since Japan took on the Chinese war, she has been buying twice as much as she has sold to the U. S. Her import balance in U. S. trade for the first seven months of 1939 was 258,000,000 yen. To replace German imports, to get deliveries before the Allies buy the output of U. S. factories, and before the U. S.-Japan trade treaty expires next January, the Japanese have boosted their U. S. purchases by approximately one-third. That put Japan on the spot.

The clever Japanese calculated that about 57% of their exports to the U. S. are raw silk, and that 52% of the silk is knitted into full-fashioned women's hosiery. The Japanese have observed that, at least in cities, U. S. women cannot do without silk stockings, and silk stockings wear out continually so that even a temporary buyers' strike is next to impossible. So by last week raw silk cost U. S. hosiers as much as $3.55 1/2 a nine-year peak price, up nearly $1 since August, up $1.75 since December. U. S. silkmen were full of confusion, distress, suspicion. Many a silkman was caught in short positions by a sudden, savage shortage. Some types of silk were not to be had at any price.

This squeeze may be a sign rather that the Japanese are desperate than that they are smart. They might lose their silk market forever. Last week in Wilmington, Del., Du Font's sheeny, much-publicized nylon hosiery went on sale at $1.15, $1.25, $1.35 (for different gauges), sold quickly when salesgirls claimed that one pair of them would outwear four of silk, that they would dry in ten minutes when washed. As material for full-fashioned hose a previous silk substitute, rayon, was a lame competitor to silk but nylon and its brother synthetics now in prospect may be another story. For silk's best defense against nylon & company is that decent silk stockings can be sold for 79-c- when the price of raw silk is below $2 (1935-38 average, $1.85). With silk at $3.50 most branded stockings were up from 79-c- last spring, to 85-c- in late summer, to $1 now.

The Japanese explained that the price rise could not be avoided. Fearing a domestic inflation, Japanese people were hoarding silk. Furthermore the 1938 cocoon crop was very small. Trans-Pacific shipping costs had risen since the War started. Total stocks of silk on hand in Japan were estimated to be very low. Besides which the Japanese, to conserve foreign exchange, were buying garments of native silk, instead of imported cotton or rayon made from imported wood pulp.

The Japanese did not stress a few facts : > 1939's summer-autumn cocoon crop is the biggest in six years, estimated at 339,800,000 Ibs.

> Recent figures show that though visible (about-to-be-shipped) silk stocks in Japan are the smallest in years, speculators are holding thousands of pounds in the interior. And the Japanese Government, which strictly forbids speculation in other commodities, does not mind in this case. > Textile-statisticians last spring observed that there was a discrepancy in Japanese silk statistics. The Japanese said that domestic consumption of silk goods was sharply up, they said elsewhere that production of silk fabrics was declining instead of increasing. Last week this discrepancy no longer existed. Reason: the Japanese had given up publishing statistics on silk fabric production.

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