Economic Growth Requires 3-Nation Effort--Volcker : Japan’s Central Bank Expected to Cut Rate

In line with a promise reportedly made last month to Treasury Secretary James A. Baker III, the Bank of Japan is expected to approve today a reduction in its central discount rate by half a percentage point to 2.5%, effective Monday.

Word of the impending step was unofficially publicized, as is customary in Japan, after Chief Cabinet Secretary Masaharu Gotoda announced that meetings of the finance ministers and central bank governors of the Group of Five and the Group of Seven will be held in Paris on Saturday and Sunday, respectively.

The Group of Five consists of the United States, France, Britain, Japan and West Germany. Those countries, with the additions of Canada and Italy, make up the Group of Seven.

The impending reduction in the discount rate was reported Thursday by all the radio and television networks here, and in this morning’s editions of Japanese newspapers.

Expected at Market Close

A Bank of Japan spokesman said today that announcement of the decision was expected shortly after the foreign exchange and stock markets close this afternoon.

It will be another historic low for the rate at which the central bank lends funds to commercial banks. And it will be the fifth reduction of a half percentage point since Jan. 30 of last year. Also, it will give Japan the lowest central discount rate of any of the countries whose financial leaders are to meet in Paris. The U.S. Federal Reserve’s discount rate is 5.5%; West Germany’s is 3%.

Japanese economists and business leaders agree that the lower rate will do little to stimulate an economy already awash with excess savings, which have fueled soaring prices in land and stocks. Noboru Goto, chairman of the Japan Chamber of Commerce, said the reduction will be insufficient, by itself, to promote growth at home.

The measure will be adopted in order to enable Japan to present an image of spurring domestic demand at the weekend meetings in Paris, as the United States has requested. Bunpei Otsuki, chairman of the Nikkeiren, the Japan Federation of Employers, said the decision to cut the rate in advance of the weekend meetings was appropriate.

A Finance Ministry official described it as the only measure that Japan could take under its policy of budget restraints designed to cut deficit financing.

Chief Significance

Its chief significance for Japan, it is felt, is that it will discourage further appreciation of the yen, which has gained 56.4% in value against the dollar since Sept. 22, 1985, when the Group of Five agreed to push the dollar’s value down.

A stabilized exchange rate, Japanese economists argue, will help to slow a decline in investments by export-oriented manufacturers. At the end of trading Thursday on the Tokyo Foreign Exchange Market, exporters were receiving only 154.73 yen for every $1 worth of exports which, until Sept. 22, 1985, had earned them 242 yen.

After word of the weekend meetings in Paris leaked out, the dollar jumped 1.40 yen Thursday.

News of the impending cut in the central discount rate also sent prices soaring to another historic high on the Tokyo Stock Exchange and induced the exchange to tighten curbs on credit for stock purchases.

From today, customers will be able to use only 50% of the market value of their stocks entrusted to brokerages, instead of 60%, as collateral for loans to buy new stocks.

The average price of stocks closed at 20,228.09 yen, up 346.33 yen from Wednesday. Buyers drove up the price of Nippon Telegraph & Telephone Corp., the former government corporation whose stock as a private company was put on the market Feb. 9, by 326.80 yen to 13,333 yen for a single share.

Burst of Buying

The spurt duplicated a burst of buying that took place when unofficial reports of the bank’s most recent previous cut in the discount rate spread through Tokyo on Oct. 30. The bank implemented that reduction on Nov. 1.

The new move reportedly was taken to fulfill a promise that Finance Minister Kiichi Miyazawa made to Baker when they met Jan. 21. After the yen set a brief, all-time record at 149.98 yen to $1 on Jan. 19, Miyazawa made a special trip to Washington to appeal for U.S. help to halt the rocketing appreciation of Japan’s currency.

He also urged Baker to call a Group of Five meeting to declare an end to the policy that the five nations agreed on in 1985 to drive down the dollar’s value.

Baker, however, reportedly insisted that Japan lower its discount rate in exchange, arguing that only by spurring greater demand at home could Japan import more and reduce its global trade surplus, which last year reached $82.7 billion--$58.6 billion of it with the United States.