Dollar Pulls Out of Dive After U.S. Vows Support : White House Declares Opposition to Further Drop After Currency Sags to Close of 138.10 Yen in Japan
The dollar dived to a postwar low against the yen in Japanese currency trading early Monday but recovered sharply in U.S. markets after the White House declared its opposition to any further erosion in the currency’s value.
Pressured by anxieties about a U.S.-Japanese trade war and the weakness of the American economy, the dollar fell in panicked Tokyo trading to a value of 137.15 yen, its lowest since Japanese currency was revalued shortly after World War II. It then recovered slightly to close at 138.10, but the drop frightened investors in the Japanese stock market, which sustained its largest single-day drop.
But the currency markets’ course was reversed abruptly just before noon Eastern time, and the dollar ended the day in New York trading at 139.40 yen, just slightly below Friday’s closing level of 139.45 yen. The dollar’s resurgence helped revive U.S. stock and bond prices, which had fallen sharply in early morning trading, and caused precious metals prices to dive.
“This volatility just shows there’s an incredible uncertainty hanging over the market,” said Nicholas Sargen, vice president and bond specialist at the Salomon Bros. investment firm in New York. “And that uncertainty may be there for a while.”
Despite the dramatic turnaround, currency traders said the dollar might not yet have reached the bottom of its fall. They said the currency’s value will remain under pressure while there is uncertainty about trade frictions, the U.S. economy and the commitment of the U.S. and Japanese governments to taking action to prop up the currency.
The Reagan Administration, in an aside during a presidential speech and in briefing material used by White House spokesman Marlin Fitzwater, again sought to calm market fears that the U.S. government is straying from its resolve to stabilize the dollar in concert with its main trading partners.
President Reagan, addressing the U.S. Chamber of Commerce, echoed the reminder of Treasury Secretary James A. Baker III last Friday that the major industrialized nations have “agreed in meetings in Paris and Washington to measures to improve world economic growth and reduce trade imbalances.”
“We also agreed to cooperate to foster stability of exchange rates,” he said.
At a briefing for reporters, Fitzwater said that “all seven major industrial nations remain fully committed to strengthening policy coordination, promoting growth and cooperating to foster stability of exchange rates. We all believe a further decline in the dollar could be counterproductive to our efforts. We all want to see stability.”
“That’s the position of the Administration,” he said for emphasis.
Fitzwater said the Administration continues to believe that the seven-nation effort represents the best approach toward stabilizing exchange rates “and we want to work with the seven countries to achieve it.”
Traders said the White House comments came at just the right moment to touch off a stampede of dollar buying. Many in the market were growing nervous at the dollar’s decline since last Wednesday; others, who had taken investment positions betting on the U.S. currency’s continued decline, were ready to take profits and “unwind” those positions, traders said.
The Dow Jones industrial index lost 40 points in the first 30 minutes of New York Stock Exchange trading but recovered as the dollar gained ground and ended the day down only 4.83 at 2,230.54.
Both gold and silver, the traditional beneficiaries of economic turbulence, rose to three-year highs in London trading. Gold reached $476.60 an ounce, while silver, which was worth less than $6 an ounce last month, rose above $11.
But the price of spot gold dropped $19.25 an ounce in late trading in New York, to close the day at $443.25. Silver was off $1.88, to $7.80, in New York.
In late New York trading the dollar was quoted at 1.793 West German marks, up from Friday’s 1.783 marks.
Agreements Expected
There was speculation through the currency markets that American and Japanese officials would soon announce bilateral agreements to settle trade disputes and to stabilize their respective currencies. Japanese Prime Minister Yasuhiro Nakasone will meet with Reagan this week in Washington.
But some traders said the meeting may pose a further threat to the dollar because of wide anticipation of the event.
“At this point, if nothing much happens, the dollar could fall further,” said John Lynam, vice president for corporate foreign exchange at Security Pacific Corp.’s New York operations.
There was speculation, too, that the Federal Reserve Board has decided that it must raise interest rates to support the dollar, rather than simply using short-term buying to bolster the currency’s value.
Paul Richter reported from New York and James Gerstenzang from Washington.
