DOLLAR RISE AIDS JAPAN'S SHIP LINES - FOR NOW

DOLLAR RISE AIDS JAPAN'S SHIP LINES - FOR NOW

The recent appreciation of the U.S. dollar against the Japanese yen is providing unexpected profits for the major shipping lines in Japan, but these companies are concerned about the possibility of resulting higher domestic interest rates.

In the short term, Japan's shipping lines obviously will enjoy increased profits because their incomes are mostly denominated in dollars and roughly only half of their operating costs are in the local currency. But they worry about a potential future deterioration in finances if a weakened yen causes a jump in interest rates.Should the value of the dollar exceed 160 yen and continue to climb for many more months, according to executives of the lines, the unfavorable aspects of the situation could overwhelm the present advantages stemming from the rise in revenues.

Higher interest rates, for instance, would increase the principal and interest payments on the lines' debts. On the average, these debts are larger per company than in any other Japanese industry.

''The more valuable dollar is assisting our company now because yen depreciation is profitable due to the fact that our freight rates are calculated on the basis of the U.S. currency," Toru Ichikawa, general manager of Nippon Yusen Kaisha's financial department, told The Journal of Commerce. ''It is a good thing for the present that shipping is a dollar-oriented business."

But the NYK executive added that there could be problems if local interest rates increase much more. "Still, the spread is not very big right now," he admitted. "The exchange rate of the yen is nearly at the bottom, with the

dollar's 160-yen level around the break-even point." Mr. Ichikawa went on to suggest that the 170 line would be "a definite overshoot."

It is believed, for example, that NYK's recurring profits jump by about 100 million yen when the value of the dollar rises by a single yen. Another leading Japanese shippingcompany, Mitsui O.S.K. Lines Ltd., also reports the same situation prevailing.

Kenji Nigo, an official spokesman for Mitsui O.S.K., also said, however, that: "While at the moment the dollar's appreciation is good for the nation's shipping lines, the result could be the emergence of inflation and ultimately higher interest payments."

Shinya Kikuya, senior managing director of Kawasaki Kisen Kaisha Ltd., or "K" Line, speaking of his company, noted that the high dollar "has helped a bit, but if it keeps going the negative impact could hurt." His company has had to rationalize to a considerable extent since the 1985 Plaza Accord drastically drove down the dollar's value, he said.

''We have been trying to become more and more competitive, and now there is the danger of higher interest rates down the road under present conditions," he told The Journal of Commerce. "We would rather prefer a stable situation between the U.S. dollar and the yen, so that we can plan on a long-term basis."

Mr. Kikuya pointed out that the "instability of the exchange market causes us an imbalance" and he added that his line is already well rationalized so the high dollar really doesn't help that much.

In contrast with NYK and Mitsui O.S.K. Lines, the "K" Line people see recurring profits gaining by 60 million yen for each one yen jump in the

dollar's value.

Due to these factors, it is estimated that the recurring profits of the major Japanese lines for fiscal 1989, a term that ended in March this year, will have exceeded their original estimates announced in November. NYK, Mitsui O.S.K. and "K" Line at that time estimated their recurring profits for all of fiscal 1989 at approximately $101.9 million, $89.1 million and $44.5 million, respectively.

In the case of Showa Line Ltd., one of Japan's leading shipping companies, every one yen gain by the dollar results in recurring profits increasing by about 40 million yen, according to Yoshio Sato, an official of the corporation's accounting department.

It was apparent that the shipping companies fear the weaker yen will tend to increase inflationary pressures on Japan's economy and this might eventually lead to even higher interest rates. Another problem mentioned is the danger that such a development could cause a slowing of Japan's economy.