Yen Rises to Record Highs Against Dollar in Tokyo : Japan Urges U.S. to Intervene; May Slash Discount Rate Again
The yen set records against the dollar in trading Monday on the Tokyo Foreign Exchange Market, and the government reportedly began consideration of slashing Japan’s central discount rate for the third time this year.
The move came after a mid-morning appeal by Finance Minister Noboru Takeshita for joint Japanese-U.S. intervention to prop up the dollar failed to stop the yen’s climb. The Japanese currency finished the day with a one-day gain of 2.24 yen, reaching a post-World War II record high of 175.45 to $1.
A record for a single transaction--at 174.80--also was set earlier Monday.
This morning, the yen opened on the Tokyo exchange at 175.05 and moved in early trading to 174.60.
The marks eclipsed records of 175.50 yen for a single transaction and 176.05 yen for a closing price, both of which were set Oct. 31, 1978, after which the yen rapidly declined in value against the dollar.
37.9% Rise Since Sept. 22
On Monday, however, no analyst or official was predicting a decline for the yen, which, according to an International Monetary Fund formula, has risen 37.9% since the finance ministers of the so-called Group of Five--the United States, Japan, West Germany, France and Britain--agreed Sept. 22 to push down the value of the dollar.
News of the record high for the yen shocked business executives and government leaders here.
(Later in London, the dollar recovered to 175.68 yen but ended the trading day in New York at 175.20 yen, down from Friday’s 176.725.)
Meanwhile, stock prices on the Tokyo Stock Exchange ended a 12-day series of gains, each of which had set record highs, as the exchange’s 225-stock average declined 8.95 points to 14,655.52.
Fear that the United States might not heed Takeshita’s call for joint intervention to prop up the dollar was believed to have spurred the consideration of yet another cut in the interest rate that the central bank charges on loans to private financial institutions. Such a move would be aimed at stimulating the domestic economy at a time when, because of the yen’s gain, overseas markets for Japanese products may be drying up.
Satoshi Sumita, governor of the Bank of Japan, affirmed Takeshita’s call for intervention but added that “for me to say anything about when and how intervention might be carried out would only invite speculation” among currency traders.
Along the same lines, a Treasury Department spokesman in Washington declined to comment on Takeshita’s statement. The spokesman noted that U.S. actions in currency markets are kept secret because their disclosure would trigger speculative buying and thwart stabilizing efforts.
The United States has protested some Japanese government efforts to boost exports, which have slumped under the weight of the strong yen, and the two countries are discussing the yen’s strength in talks to resolve U.S. trade grievances, the spokesman said.
Any U.S. interventions in the exchange markets, involving sales or purchases of large amounts of currency, are carried out by the Federal Reserve Board. Some experts have concluded that the Fed intervened last Friday, when the dollar briefly approached its postwar low against the yen, to slow that slide.
However, some American commentators have said the dollar should be driven even lower in order to increase the attractiveness of U.S. exports and cut the U.S. trade deficit.
C. Fred Bergsten, director of the Institute for International Economics and a former assistant secretary of the Treasury, said last Wednesday that the dollar needed to drop “promptly” to about 160 yen to help substantially reduce America’s trade imbalance with Japan, which last year reached a record $49.7 billion.
Citibank of New York, however, is predicting that such a plunge is unlikely in the short term.
Citibank’s corporate advisory service, in a weekly report published Sunday, predicted yen-dollar exchange rates ranging from 174 to 178 for this week and added: “We have come close to the end of the dollar’s fall. . . . Fundamentals suggest an upturn is not far off.”
Last Tuesday, only a day after the Bank of Japan cut the central discount rate for the second time this year, Prime Minister Yasuhiro Nakasone told Parliament that the government already was considering the possibility of a third decrease.
The rate, which was reduced a second time in concert with the United States and other advanced nations, now stands at 4%, although accompanying reductions in the prime rate and interest paid on deposits have not yet been carried out. Those reductions are scheduled to be put into effect March 31.
Monday’s record in the value of the yen relative to the dollar produced reports of moves by Japanese companies to cope with the gain.
Toyota, Japan’s largest car manufacturer, announced last week that it will raise retail prices of cars and trucks in the United States by an average of $412 per vehicle, or 4.1%. Car prices will rise by an average of 4.3%, or about $466, while truck prices will rise by an average of 3.7%, or about $315.
The announcement made Toyota the fourth Japanese auto maker to raise its prices twice since the yen started soaring last Sept. 22. The others are Mazda, Nissan and Honda.
Expand U.S. Production
Nissan, faced with an expected 15% plunge in profits this fiscal year largely because of the yen’s appreciation, also announced a sweeping cost-cutting campaign, including a 10% pay cut for its executives.
The Yomiuri newspaper reported that both Nissan and Mitsubishi are considering expanding production in the United States to replace some of their car exports from Japan.
Major electronics firms, which also rank among the strongest of Japan’s exporters, were reported planning or already carrying out selected switches of production from Japan to subsidiaries in South Korea, Taiwan and Southeast Asia.
Hitachi was reported to have decided to move production of some of its Braun television tubes from Japan to a subsidiary in Singapore, while Matsushita was reported to have decided to start importing into Japan window-unit air conditioners that it produces at a plant in Malaysia.
Takashi Ishihara, chairman of the Japan Committee for Economic Development and also chairman of Nissan Motor Co., declared that Japan “will fall into an all-out recession if the government fails to rapidly adopt deflation countermeasures.”
Tokai Bank predicted Monday that an exchange rate of 175 to 1 would drive real economic growth for fiscal 1986 down to 1.9%, compared to a target of 4% set by the government.
Mitsubishi Trading Co. predicted last Wednesday that a yearlong exchange rate of 180 to 1 would reduce the growth of Japan’s economy to 2%. Both predictions were made on a presumption of a $20-a-barrel price for oil.
For every $1 worth of goods sold overseas before the Group of Five meeting last Sept. 22, Japanese manufacturers were receiving 242 yen. But as of Monday, they were receiving only 175.45 yen for the same $1 worth of exports.
