U.S., Japanese Effort Fails to Halt Dollar’s Slide

The dollar resumed its slide Thursday as a long-awaited interest rate cut in West Germany and a tepid pledge of economic cooperation between the United States and Japan failed to brake the monthlong plunge of the U.S. currency.

Immediately after Japanese Finance Minister Kiichi Miyazawa left a 2 1/2-hour meeting Wednesday night with Treasury Secretary James A. Baker III, currency traders in Tokyo raced to unload dollars, pushing the American currency down 1.20 yen to 152.40.

Dealers interpreted the joint statement issued by Miyazawa and Baker as evidence that the U.S. government would do little to join other nations in currency interventions to prop up the dollar. “I didn’t expect much from the meeting,” said a trader at a New York bank, “but this is even less than I expected.”

As currency trading moved around the globe during the day, the dollar continued its free fall in London but recovered somewhat late in the day in New York.

The dollar closed at 1.8150 West German marks in New York, down from 1.8405 Wednesday night but above an earlier low of 1.8085, down from 153.75.

A report showing fourth-quarter U.S. economic growth as a disappointing 1.7% also contributed to the dollar’s fall, dealers said.

Leaders in Germany, Japan and other nations were concerned about the dollar’s fall because it makes American goods cheaper on the international market, threatening their sales and affecting their economic growth.

The dollar has fallen nearly 50% in value against the Japanese yen since September, 1985, when finance officials from five major industrial nations announced an agreement to encourage the dollar’s fall.

The United States sought a decline to help narrow the nation’s trade deficit with its trading partners.

In West Germany on Thursday, the central bank cut its key interest rates by half a percentage point, as expected, dropping the discount rate charged German banks to 3%. Switzerland and Austria immediately echoed the German rate cuts. A discount rate cut in Japan is also expected, but the Bank of Japan did not announce any action Thursday.

Reagan Administration officials have been pressing Germany to cut interest rates for months in an effort to stimulate the European economy and spur greater imports of U.S. goods, but the German Bundesbank offset the stimulative effects of the cut, simultaneously tightening the nation’s money supply by imposing stricter loan conditions on commercial banks.

“We made money cheaper and more scarce,” Bundesbank President Otto Poehl said, acknowledging that the move was chiefly symbolic.

Baker, in congressional testimony Thursday, praised the German action, but warned: “We would certainly hope that movement on the other side would not diminish or adversely impact the beneficial results that we could expect from a discount rate cut.”