U.S. Weighs New Push to Stabilize Yen, Region


The Clinton administration weighed plans Tuesday to launch a high-profile effort to prod Japan into stabilizing the sagging yen, in hopes of heading off a second financial crisis--and possibly a major recession--in Asia.

Administration officials said the White House was considering sending Deputy Treasury Secretary Lawrence H. Summers to Tokyo for emergency talks with top Japanese Finance Ministry officials on Thursday. Summers would leave Washington for Japan today.

A spokesman with the Finance Ministry said today that he could not confirm Summers' visit.

The 43-year-old Summers led the administration's effort in January to pressure Indonesian President Suharto to follow the financial rescue program worked out by the International Monetary Fund. Suharto has since stepped down as Indonesia's leader.

Summers' proposed mission to Japan comes amid increasing nervousness in global financial markets as investors worry about the impact of the falling yen on Japan and other Asian countries. Japan is already in a recession, and analysts fear the slump could deepen and spread.

The fretting has sent financial markets reeling. Although the Dow Jones industrial average regained 37.36 points Tuesday to close at 8,665.29 after falling more than 200 points Monday, it is still down nearly 7% from its spring peak.

The value of the yen rose slightly in New York on Tuesday after reports of Summers' visit leaked out, edging up to 143.47 to the dollar in late trading there from 146.15 on Monday. During the turmoil Monday, the yen hit 146.57 to the dollar, its weakest value since August 1990.

The administration has been prodding Japan for months to stimulate and deregulate its lagging economy and bail out its insolvent banks, but the government of Prime Minister Ryutaro Hashimoto has approved only modest measures.

A visit by Summers would mark the most visible step the United States has taken since the yen began plunging last month. Treasury Secretary Robert E. Rubin has refused to intervene in global currency markets to help stem the slide unless Japan makes major policy changes first.

But on Tuesday, Rubin told reporters that the latest plunge in the value of the yen "has been of enormous concern to us." He said U.S. officials had been "very actively involved in talking to Japan . . . publicly and privately."

However, Summers might find a less-than-receptive audience in Japan, whose government insists that its economic woes are not as severe as Americans think, and that it has taken adequate measures to deal with the problem.

Hashimoto has stated repeatedly that the pessimism of the international markets is unwarranted because Japan's economic fundamentals remain strong.

"I would like the public to believe in Japan, because we have extremely high savings rates and foreign reserves, and in addition, huge human resources," Hashimoto told parliament Tuesday.

Hashimoto has asked the U.S. and the other major industrial nations to join in a concerted operation to boost the value of the yen.

In recent days, the continuing slide of the yen has taken on new proportions, threatening to cause the Japanese slump to spread to other Asian nations and eventually even crimp the U.S. economic boom.

If the yen's value continues to decline, Japanese exports will become more attractive at the expense of other Asian countries' exports. And a deepening recession in Japan would also curtail the amount of goods it imports.

U.S. officials also worry that if the yen plunges too far, it will force China to abandon its pledge not to devalue its currency, the yuan. That in turn could set off a round of competitive devaluations in Asia.

Analysts say a new round of devaluations could plunge the region into an even deeper recession: first, by further weakening the balance sheets of banks in Asian countries, and second, by making it more difficult for Asians to import what they need.

Yet the policy options available to the Japanese government are extremely limited. Repeated and costly interventions in stock and currency markets have succeeded only in halting the slide for a few days or a week. Interest rates are at rock bottom, and cannot be slashed further to stimulate the economy. And the government has already announced a record $124-billion package of temporary tax cuts and public works spending to get the economy moving again.

With a key election for the upper house of parliament July 12, this is an awkward time for the ruling Liberal Democratic Party to agree to such drastic measures as forcing closure of troubled banks. Though the U.S. probably would welcome such a move, it would almost certainly boost Japan's unemployment rate--which has grown to 4.1%--and thus be politically unpalatable.

Summers' visit to Tokyo would come a week before President Clinton is scheduled to arrive in China for a meeting with Chinese President Jiang Zemin, and the United States has spent a good deal of political capital persuading Beijing to hold the yuan in check.

Officials said that if the yen can be stabilized before Clinton's China visit, it will make it easier for Beijing to stand by its promise--and enable Clinton to praise China for helping to avert a regionwide recession. China has been pressing Washington to prod Japan into action.

The situation in Japan has posed a major challenge for the Clinton administration. Top presidential economic and foreign policy advisors have been meeting frequently on the issue, but without result.

Additional pressure came Tuesday when the American Automobile Manufacturers Assn., the lobbying arm for the Big Three U.S. auto makers that so far have been muted in their response to the weak yen, called on the U.S. and other major industrial powers to intervene to strengthen the yen.

AAMA President Andrew Card said in a statement issued from Washington that the weak yen "is seriously impeding American export opportunities and fanning the flames of Asia's economic crisis." He said the U.S. economy could be threatened by the widening financial crisis in Asia.

The weak yen has already forced Chrysler Corp. to cut exports to Japan, and its sales there are down 50% from a year ago, Chrysler Chairman Robert Eaton said.

Officials cautioned that there was no guarantee that Summers would be able to convince the Japanese to move beyond what they have done so far, but he at least could erase any doubts in Japan that Washington is disappointed with Tokyo's actions thus far.

Because the United States has refused to intervene in the currency markets--by selling dollars for yen to help bolster the price of the Japanese currency--some traders apparently believe it wants the yen to decline further as a way to help Japan's economy. Officials here say that impression is wrong.

They have been hinting that they might intervene in the foreign currency markets if Japan takes major steps to stimulate its economy and bolster its financial system. Rubin is said to believe that without such policy changes, intervening would be a waste of time.

Times staff writers Sonni Efron in Tokyo and Donald W. Nauss in Detroit contributed to this report.

* U.S. STOCKS REBOUND: Oil and computer issues led the market back from Monday's sell-off. The Dow gained 37. D4

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