Dollar Still Takes Drubbing Against Yen Despite Central Banks’ Efforts to Halt Slide

The dollar continued to take an extraordinary drubbing against the yen on foreign exchange markets Friday, amid attempts by central banks to halt the slide and growing speculation as to when the greenback’s plunge would come to an end.

The dollar’s pounding reflected a widely held view that officials of the United States and other governments have little ability to prop up the dollar, whose weakness reflects the nation’s massive trade and budget deficits.

In Tokyo, where business executives expressed growing anger that the strong yen is destroying export profits, the dollar closed at 142.50 yen, its frailest showing since exchange rates were reestablished after World War II. Later in the day, the dollar finished at 142.90 yen in New York, down considerably from Thursday’s level of 144.25.

The heated trading followed a 48-hour period of intense speculation over U.S. policy on the currency, triggered by vague, high-level pronouncements from the major industrial powers.

In Washington on Wednesday, officials of the United States, Japan, West Germany, England, France, Canada and Italy reiterated their declaration of several weeks earlier that the dollar’s fall since 1985 has now reached the point where it is “broadly consistent with economic fundamentals.”

On Thursday, Treasury Secretary James A. Baker III told a key committee of the International Monetary Fund that the dollar’s decline had been orderly and would help reduce the huge U.S. trade deficit.

But rather than being comforted, currency traders interpreted these statements--absent convincing evidence of a turnaround in the U.S. trade and budget deficits--as signaling a continued fall of the dollar against the yen. Baker and other U.S. officials have supported a decline in the dollar as a way to make U.S. products more cost-competitive throughout the world.

Purchases Reported

“I think the markets wanted an excuse to test the high on the yen, and the secretary’s speech gave them that excuse,” said Anne Parker Mills, a currency analyst with Shearson-Lehman Brothers, a New York investment firm.

Central banks in Japan, Britain, France and West Germany reportedly purchased dollars Friday in an attempt to boost the currency’s value and may have had some effect in discouraging a more severe drop. But financial observers questioned whether such actions, which represent only a tiny percentage of trading worldwide, can have much long-term effect if they run counter to sentiment within the jittery marketplace.

“If the market moves into an irrational phase, what governments want to see may not be what governments get,” Mills added.

Baker and other financial officials sought to calm the agitated market on Friday by suggesting that the seven leading industrial democracies would work together to maintain stability among their different currencies.

“The United States and the six major industrial countries are fully committed to implementing our undertakings in these agreements,” the Treasury secretary said, referring to previous meetings in New York and Paris in which the nations agreed to prevent precipitous changes in currency values.

Baker’s remarks followed similar market-calming moves by French Finance Minister Edouard Balladur, who said he did not believe that the United States wanted a weaker dollar.

But the situation remained chaotic, with neither financial officials nor currency traders confident that the dollar had reached a stable plateau.

“Our assessment is that there still is doubt in the market whether events justify a further strong decline in the dollar,” West Germany’s finance minister, Gerhard Stoltenberg, told reporters at a luncheon. “We see a mixed feeling in the market since January. You can make a good argument that the dollar is stable against European currencies. But there is a special problem with the yen.”

The United States, which last year had a trade deficit pegged between $166 billion and $170 billion, had its greatest imbalance with Japan, a deficit of more than $58 billion, according to the Commerce Department. U.S. officials have sought a lower-valued dollar as a way to improve the situation.

Japan’s own government provided a graphic illustration of the yen’s strength on Friday, reporting a record trade surplus of $89.77 billion for the 12 months ending March 31, up sharply from the previous year. The figures appeared to reflect in part the rising prices of Japanese goods, a trend that ultimately could reduce the trade.

Although some observers question whether the yen merits its historic strength, in light of Japan’s growing economic and political problems, others forecast a continuing fall in the dollar absent convincing U.S. progress in reversing the trade and budget deficits.

“We think the longer term course of the dollar is downward,” said A. C. Moore, director of research at the Argus Research Corp. in New York.

Times staff writers Oswald Johnston and Tom Redburn in Washington contributed to this story.