Japan Sets Target for Yen Value After Dollar Skids
The U.S. dollar fell Monday to a record post-World War II low against the Japanese yen, plummeting to 149.98 yen to the dollar at one point before recovering slightly to close at 150.45.
The move prompted Japanese Finance Minister Kiichi Miyazawa to announce early today that he will go to Washington on Wednesday for talks on foreign exchange with Treasury Secretary James A. Baker III. It also led the Ministry of International Trade and Industry to establish an “extraordinary headquarters” to combat the continuing upward spiral in the yen’s value.
The dollar also fell Monday in comparison to the West German mark, slipping to 1.8070 marks on European foreign exchange markets, its lowest level since 1980.
Meanwhile, gold, which usually rises in value as the dollar falls, was fixed in London Monday afternoon at a three-month high of $422.25 an ounce compared to Friday’s close of $416. Investors generally feel safer with gold when there is doubt about the strength of the dollar.
The yen’s closing price in Tokyo, up 2.65 from Friday’s close, left the Japanese currency 60.9% above its value before Sept. 22, 1985, when the finance chiefs of five industrialized countries met in New York and agreed to drive down the value of the dollar. Just since Jan. 1, the yen has gained 6.3%. Early this morning, the yen opened higher on the exchange market here at 151.80 to the dollar.
Currency trading also reached an all-time high here Monday, with $10.2 billion worth of transactions overwhelming estimated purchases of more than $2 billion made by the Bank of Japan in a futile effort to halt the yen’s climb.
As new alarm spread through business circles already reeling under the deflationary effects of yen appreciation, MITI Minister Hajime Tamura said his ministry is setting up the “extraordinary headquarters to combat yen appreciation.” A rise in the value of the yen relative to other currencies makes Japanese exports proportionately less attractive and is requiring Japanese exporters to cut profit levels to retain market share.
Tamura refrained from spelling out what measures the government might take. But he set a goal for the yen’s value at “170 to the dollar as a base, with a float of plus or minus 10 points.”
It was the first time any Japanese government official had named a specific goal for the yen’s value.
Speaking in a special news conference, Tamura called the yen’s penetration of the 160-to-the-dollar level “a danger signal” and added: “Breaking through the 150-to-the-dollar level is a flashing red light” for the Japanese economy.
Tamura’s comment contrasted sharply with a remark made in a U.S. television interview Sunday by Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee. Bentsen said the dollar should fall to between 120 yen and 125 yen if the United States is to cut its huge trade deficit with Japan.
His statement, along with a report in Newsweek magazine that the U.S. Treasury viewed 140 yen and 1.70 West German marks as appropriate rates for the dollar, triggered Monday’s spurt in the yen’s value. Both reports came after Japan announced Friday that its global trade surplus had reached $82.6 billion last year, 79% higher than in 1985.
Although the yen reached new peaks 22 times against the dollar last year in Tokyo, Monday’s record was the first new breakthrough on the Tokyo Foreign Exchange Market since last Aug. 20, when the yen closed at 152.55 to the dollar. For a single transaction, however, it had set a record at 151.60 last Wednesday in New York.
Japanese bankers Monday were divided on the outlook, with some predicting that the dollar could fall in coming weeks to the high 130s. Others said they believed that the level would hover around 150.
New Round of Talks
The media here reported that Japan will seek joint intervention in foreign exchange markets and another round of mutual reductions in central bank discount rates with the United States, West Germany, France and Britain, the other members of the so-called “Group of Five” that agreed 16 months ago to drive down the dollar’s value. Before it was announced that Miyazawa would visit Washington this week, his deputy, Toyoo Gyoten, left Monday for the U.S. capital, reportedly carrying orders to seek a new Group of Five meeting after West Germany’s general election next Sunday.
Government officials, while condemning the yen’s spurt as unfounded and speculative, remained guarded in their public comments.
Only Masaharu Gotoda, chief Cabinet secretary, hinted that Japan would ask for help behind the scenes. He told reporters that an agreement between Miyazawa and Baker last Oct. 31 to stabilize yen-dollar exchange rates specified that “adjustments and discussions” should be carried out “with all countries . . . if conditions require.”
Corporate Profits Hurt
The Miyazawa-Baker joint statement was issued when the yen was trading at about 160 to the dollar, a level at which it remained until early this month, when U.S. officials started making a series of statements supporting a weakening of the dollar. The two men reportedly will meet again Wednesday afternoon and Miyazawa will leave Washington the next day.
Despite continuing monthly gains in Japan’s trade surplus expressed in dollars, Japanese manufacturers now receive 92 yen less for each $1 worth of exports than 16 months ago. The drop in yen earnings, which showed up as a 15% decline in the yen value of Japan’s exports last year, has cut deeply into corporate profits.
The giant Matsushita Electric Co., for example, announced Monday that it suffered a foreign exchange loss of 90 billion yen ($600 million at the current rate) during its business year that ended last Nov. 30.
