Japanese Woollen Industry According to statistics up to the 31st March, 1953, Japan is the second best customer for Australian goods as a whole during the current trading year. This, of course, is largely due to her extensive purchases of wool, in which item she is also our second largest buyer.
It will be remembered that at the commencement of the present season Japanese mills were exceedingly short of stock and commenced to buy as soon as the sales opened. This undoubtedly had a firming effect on the market at that time. They then withdrew temporarily until November in the expectation that prices would recede and that they would be able to buy the bulk of their requirements in their own time and at more advantageous prices.
This, of course, did not happen but the main point was that in the early part of the season a satisfactory price level was established because of active competition, even though several of the more prominent buying countries were missing from the market.
Japan's purchases to date apparently aggregate about 430,000 bales and the expectations are that a further 170,000 bales will be purchased, making a total for the season of 600,000 bales, This, I think, is the second highest figure ever reached by Japanese purchases and is second only to the 800,000 bales bought for pre- war stockpiling.
Information received from the Commercial Counsellor, Tokyo, indicates that estimated stocks of wool which will be held by Japan as at 30th June, 1953, will be of the order of 240,000 bales, which is approximately six months stock on a one shift basis, thus putting them in a much stronger position than last year.
The Japanese active participation in the Australian market imparts two features to the price level. Firstly, by reason of their quantity and secondly, by the fact that as they operate on a relatively limited section of the clip and compete actively among themselves, the tendency is for the gap between the top grades and the medium grades (centring around types 77B and 78B) to be narrowed by the raising of the latter group.
There are four main features of the Japanese woollen industry which are inclined to distinguish it from similar industries in the other main purchasing countries, viz.:
(1) The industry is equipped largely with French combs, which means that they have specialised on short staple wool, thus leading to the limitation of types of purchases referred to above.
(The historical reason, I believe, for this concentration was that the woollen industry was originally established by firms engaged in the cotton industry who were used to the relatively short fibres for cotton and they adapted their techniques to wool).
(2) Nearly all the wool purchased by and processed in Japan is used domestically, except for export to Asiatic and dollar countries, USA and UN military or semi-military purchases, both of which are comparatively small. The industry, therefore, whilst being a considerable drain on Japan's foreign exchange resources, contributes little to the accumulation of those funds.
(3) The Japanese woollen industry since the war has purchased the greater part of her wool requirements from Australia (one writer puts it as high as 82% and even he, I think, is conservative). My opinion is that the industry would be quite happy and, in fact, anxious to continue this arrangement as long as they have no substantial reason to change or unless they are forced into it by pressure of circumstances or from other sources-for political or financial reasons.
(4) The Japanese woollen industry is still relatively in poor financial straits and makes extensive use of credit in their purchases. This is aggravated by the very high rate of interest charged by Japanese banks which is somewhere between 9 and 10%, whereas they can get financial accommodation in Australia at roughly half that figure.
It will be noted that in these four points there are elements of danger for our wool trade, based purely on internal factors in the woollen industry of Japan itself. In addition there are four factors which may condition future developments. These are:
Firstly, the state of balance of trade between Australia and Japan. According to Commonwealth Statistician's figures for the nine months ended 31 March, Australian imports from Japan aggregated in value 4,289,040 and exports 59,109,000. This compares with figures of 36,816,000 and 37,935,000 for the corresponding period of 1951/52.
The Japanese Government have already on several occasions indicated their uneasiness about this position.
Secondly, as all trade between Australia and Japan is conducted within the terms of the sterling area payments arrangement signed in November 1951, Australian sales could be vitally affected by the level of Japanese holdings of sterling.
These holdings reached the peak figure of 127million pounds sterling towards the end of last year and have now dropped to approximately 30 million, this level being too low for the financing of current trade and negotiations have therefore been proceeding for some time to alleviate the position. Although most sterling countries have acted to facilitate the importation of Japanese goods, Australia, which has by far the largest active trade balance with Japan, so far has adopted an extremely rigid attitude.
Thirdly, the general attitude at present in Australia to trade with Japan is certainly not conducive to the development of any soft feeling on the part of the Japanese to Australia if they are forced to the position of restricting sterling area purchases and they will have no reason to endeavour to give favourable treatment to our claims. Their dissatisfaction on these grounds relates to:
(a) the Australian import licensing policy as mentioned above;
(b) our refusal so far to favour Japan's entry to GATT; and (c) the current negotiations on pearling and fishing practices.
Fourthly, it must not be overlooked that Japan is one of the principal textile countries of the world. She is the largest exporter of cotton piece goods and has a very great rayon and substitute fibre industry. Japanese mills are continually experimenting with substitute fibres and a number of them have established technological agreements with American concerns who specialise on this type of production. There seems to be little doubt that development in this field will continue, particularly as the substitute fibre industry and the silk industry are the only two branches of the textile trade where Japan has some domestic source of raw material. In the case of cotton she is wholly dependent, and in the case of wool virtually dependent on imported supplies as it is considered that production of wool in Japan will never be a factor in the industry.
There is considerable unrest in the Japanese wool trade at the present time because of these factors, allied to the general unstable condition of Japanese economy as a whole and the straight-jacket imposed on Japanese trade by her inability under present conditions to trade with China, Manchuria and Eastern Russia. One Japanese writer recently commented that the woollen industry of Japan was enjoying 'prosperity in a fools' paradise'.
He forecasts that the Japanese industry would tend towards the use of wools other than Australian to enable them to buy better and to get a wider range of wools. A recent agreement between Japan and the Argentine proposed expenditure of approximately 9 million for the purchase of 100 00 bales of Argentine wool. Whilst, therefore, every apparent prospect pleases in our wool trade with Japan, there are considerable grounds for apprehension.
It is true that there are certain of these which are entirely in the control of the Japanese themselves. However those factors dealing with the financial position and international relations can be considerably influenced by Australian action.
It is my considered view that by comparatively small concessions in principle to the Japanese-particularly in the import licensing field-we can do a great deal to safeguard our position in this immensely important market for Australian wool. Moreover, it appears that certain advantages which Japan is seeking, particularly in regard to entry into GATT, will eventually be obtained and if we oppose them to that stage and then are compelled into acceptance we will certainly gain no goodwill from Japan while slight concessions at the present time and an apparently cheerful acquiescence in the seemingly inevitable could do much to help the future potentially difficult position.