Japan Acts to Drive Down Value of Yen : U.S. Dollar Rebounds From Postwar Low After Intervention

The Bank of Japan intervened in foreign exchange trading to drive down the value of the yen, currency traders said Wednesday, causing a slight increase in the relative value of the dollar.

At the close of trading here Wednesday, the exchange rate was 176.80 yen to the dollar, up 1.90 yen from Tuesday’s 174.90. Tuesday’s rate was a record low for the dollar here in the years since World War II.

Satoshi Sumita, governor of Japan’s central bank, refused to confirm or deny that there had been any official intervention. Dealers reported that the action was taken Tuesday in the New York foreign exchange market, but Sumita said: “I am aware of reports that the Bank of Japan conducted ‘reverse intervention’ (in support of the dollar). I have no comment on those reports. But I reiterate . . . that intervention in the case of wild fluctuations in the market is an appropriate action.”

Series of Purchase Orders

Dealers said that on Tuesday, when the yen reached a level of 174.40 against the dollar in New York, the bank placed a series of $10-million purchase orders using yen accounts in Japanese banks in New York. As word of the orders spread through the New York market, the dollar immediately spurted up, though most of the orders were not carried out.

The orders, it was reported, specified dollar purchases at 174.30 yen, a price at which sellers quickly disappeared when the dollar turned upward.

It was the first intervention to prop up the dollar since the top financial officials of the United States, Japan, West Germany, France and Britain agreed in New York last Sept. 22 to promote the value of non-dollar currencies.

Financial analysts described the central bank’s move as a “display of intention” rather than a full-fledged intervention.

Word of the New York action alone was sufficient to drive up the dollar’s value Wednesday in Tokyo. No intervention was reported here.

According to Japanese press reports from Washington, the Bank of Japan had informed U.S. monetary officials of the planned step. U.S. officials had rejected an appeal from Japan for joint intervention to support the dollar but they agreed, according to these reports, not to criticize the Bank of Japan’s action.

In Washington, a Treasury Department spokesman, explaining Wednesday why the U.S. would not discuss directly why it would not intervene to support the dollar and help prevent further weakening of the yen, said: “As a general rule, we never comment on currency interventions until several months after the fact.”

Despite the Japanese press reports, he added that it is not certain that the Japanese actually requested intervention by the U.S. government. “I don’t think they have made a request,” he said.

The U.S. government remains committed to the policy established at the Sept. 22 meeting, he said. “If all members agreed that it would be useful or helpful for concerted intervention, we would participate. That’s still our policy.”

In a speech in Washington on Tuesday, Treasury Secretary James A. Baker III reiterated his position that the decline of the dollar so far has been beneficial to the U.S. economy. Since September, Baker said, the decline in the dollar has occured under “generally orderly conditions,” falling 21% against the German mark and 28% against the Japanese yen. “The dollar decline is obviously good news for exporters and everyone concerned about the (U.S.) trade deficit.”

Although many Japanese businessmen and some government officials have said that the yen has gained too much value, Sumita and Finance Minister Noboru Takeshita have said only that the appreciation has occurred too rapidly and that stability must be restored to the exchange markets. Neither has said that the value of the yen is too high.

The yen’s value has increased 36.9% in the past six months, and this has led to widespread fear that reduced export profits will cause deflation in Japan, driving down real growth from the government forecast of 4% to as little as 1.9% for fiscal 1986 beginning April 1.