Japan Seeks Way to Curtail Dominance of U.S. Dollar

Japan, shocked by the reaction of financial markets to what it sees as irresponsible U.S. budget policy, seems to have decided that now is the time to end American hegemony in the world’s monetary system, Western diplomats and economists say.

After years of tacitly following Washington’s lead, Tokyo is beginning to flex its muscles as the world’s largest creditor nation, calling for a more even distribution of economic power among itself, the United States and West Germany.

Toyoo Gyohten, Japan’s vice finance minister, said last week the time had come to move away from the dollar-based world currency system to one more evenly balanced on the Japanese and European currencies as well.

Expressing what he said was a personal opinion, Bank of Japan Deputy Governor Takeshi Ohta said recent gyrations in world stock markets had raised serious questions about the current world monetary system based on the dollar.

Faced with a financial crisis such as that in the past two weeks, reliance on one currency had been shown to be potentially dangerous, he said.

Japanese officials said the present monetary system had allowed the United States to run up a huge debt by living off the savings of the rest of the world, particularly Japan.

Because it has been at the center of world economic policy-making, Washington had been able to postpone the day of reckoning for spending more than it saves until this month’s abrupt collapse on Wall Street, they said.

But now both the Reagan Administration and the U.S. Congress have been forced to the negotiating table to tackle the huge U.S. budget deficit that is increasingly seen as the source of most of the world’s economic ills.

Indicative of the tougher stance being taken by Japan, Prime Minister Yasuhiro Nakasone said last week that Washington must first come to grips with its budget deficit before major nations can meet to discuss the problem of collapsing stock markets and a plunging dollar.

His attitude differed markedly from that adopted by Tokyo in the past, when the slightest sign of a weaker dollar was enough to send a Japanese minister scurrying to Washington for talks.

Because of the premier role the dollar enjoys in the world monetary system. Washington has been able to rack up huge amounts of overseas debts without having to meet the stiff economic conditions demanded of other debtor nations, Japanese officials said.