U.S., Japan Say Yen’s Rise Should Halt

Japan and the United States have agreed that the appreciation of Japan’s currency, the yen, against the U.S. dollar should be halted, Japanese Finance Minister Kiichi Miyazawa announced Friday.

Miyazawa said the two nations had agreed on the need to cooperate on a variety of world economic problems, including the stabilization of exchange rates. Reading a statement endorsed by Treasury Secretary James A. Baker III and himself, Miyazawa said the current exchange rate between the yen and the dollar is “broadly consistent with . . . present underlying (economic) fundamentals.”

It was the first time since the finance chiefs of the United States, Japan, France, West Germany and Britain agreed in September, 1985, to drive down the value of the dollar that the United States has spoken out publicly to curb the dollar’s fall against the yen. That accord, reached at the Plaza Hotel in New York City, has been dubbed the Plaza Agreement.

The U.S.-Japan statement stopped short of promising explicitly to intervene in foreign exchange markets to stabilize the yen-dollar rate. Rather, it said that the two finance chiefs “reaffirmed their willingness to cooperate on exchange market issues” and “shared the view that exchange rate instability can jeopardize stable economic growth.”

End to Appreciation

Miyazawa, however, told reporters that the agreement, for Japan, signified an end to the yen’s appreciation. For the United States, he said, it meant an end to public statements by Reagan A1684892014further appreciation of the yen.

“There certainly can be cooperative intervention if the exchange rate again starts to fluctuate strongly,” he added. He said, however, that the United States and Japan had not set any “target zone” for the value of the yen.

In Washington, a senior Treasury Department official refused to specify the rate at which the dollar would be defended--if at all.

“There is no commitment to any particular action regarding exchange rates,” he said. “Intervention is something we don’t comment on, don’t discuss.”

Policy Unchanged

The official, who declined to be identified, added: “There is no change in our intervention policy. We are prepared to consider it when we believe it would be helpful.”

However, in a hint that Baker and Miyazawa agreed on a general range in which the yen-dollar exchange can fluctuate, the official said that “the current yen exchange rate is at the low end of its recent trading range against the dollar.”

The Baker-Miyazawa agreement coincided with the Bank of Japan’s announcement that, for the fourth time this year, it was reducing the discount rate, this time by half a percentage point to a record low 3%, in a move aimed at stimulating the domestic economy and increasing imports.

Both Japanese and American officials indicated that the agreement represented a trade-off: Japan gave in to American demands for another reduction in its interest rates in exchange for the U.S. pledge to cooperate in halting the rise of the yen’s value.

U.S. officials also suggested that the reduction in the Japanese discount rate should not be regarded as a signal that the Federal Reserve Board intends to do likewise and cut the Fed discount rate below 5.5%. “That is not part of this package,” a senior official said.

Rebuffed at Summit

Prime Minister Yasuhiro Nakasone had sought to win agreement from Reagan and other leaders at the Tokyo summit he hosted in May to brake the yen’s appreciation at an exchange rate hovering around 170 yen to the dollar. But Nakasone was rebuffed, and the yen continued its uninterrupted upward spiral.

Miyazawa, who was named finance minister in July, said the agreement was a “cumulative outcome” of his efforts to stabilize the exchange rate. He traced the beginning of those efforts to a meeting he and Baker held in San Francisco on Sept. 6. The agenda of that meeting was never revealed publicly.

Last April, as policy chairman of the ruling Liberal Democratic Party, Miyazawa criticized the United States and the other Plaza Agreement nations for refusing to cooperate to halt the yen’s rapid appreciation after Japan had helped launch its climb.

A 50% appreciation of the yen since September, 1985, has forced Japanese exporters either to raise dollar prices in countries to which they ship their goods or accept smaller yen profit margins. While each $1 worth of exports before Sept. 22, 1985, earned the Japanese 242 yen, now the same product unit priced at $1 overseas brings them only 161 yen.

Profits Decline Dramatically

In fact, exporters have raised their dollar prices, on average, by only enough to cover 50% of the appreciation’s bite into their yen profits. The result--dramatic profit declines, sluggish investment by manufacturing firms and signs of rising unemployment--has left the Japanese economy stagnant.

The Industrial Bank of Japan on Friday predicted that Japan’s gross national product would grow in real terms by only 1.9% in fiscal 1986, which for Japan ends next March 31. By contrast, Nakasone’s government predicted last December that growth this fiscal year would reach 4%.

After hitting a peak of 152.55 yen to the dollar Aug. 20, the yen had been trading with only minor fluctuations between 153 and 155 to the dollar until the dollar suddenly spurted upward Oct. 23 and 24, gaining 5.72 yen in value in those two days.

Before the Baker-Miyazawa statement was issued, the dollar closed at 161.45 yen on the Tokyo Foreign Exchange Market on Friday to bring the yen’s appreciation since the five-nation Plaza Hotel accord to 49.89%.

Dollar Value Rises

Although the Tokyo Foreign Exchange Market is closed today, the dollar, reacting to the Miyazawa-Baker statement, shot up to 163.70 yen, a gain of about 2 yen, in early Friday trading on the London Foreign Exchange Market. The dollar closed at 163.65 in London and 163.20 yen in New York.

Ironically, the agreement was announced the same day the Finance Ministry revealed that Japan had recorded its largest-ever monthly trade surplus--$9.79 billion--in September. That brought Japan’s black ink for the first half of its fiscal year to a record $50.5 billion.

Japan’s surplus with the United States through the first nine months of the year amounted to $43.1 billion, or an annual rate of $57.4 billion, according to U.S. Commerce Department figures. Last year, Japan ran a $49.7-billion surplus with the United States.

The Baker-Miyazawa statement also reiterated promises both nations have made in an attempt to correct their trade imbalances with the rest of the world.

The Japanese commitments mentioned were a $22.4-billion package of measures approved in September to stimulate the domestic economy, tax reforms to be carried out next year, and Friday’s cut in the rate at which Bank of Japan loans money to commercial banks. The American commitments cited were a reduction in the U.S. budget deficit, tax reforms, and efforts to halt protectionism.

Key to the deal, the senior American official said, was the Japanese willingness to take steps necessary to stimulate their economy. “These are responsive to a need we see for stronger domestic growth in Japan,” he said.

Times staff writer Oswald Johnston, in Washington, contributed to this story.