U.S. Is Right to Bolster Yen

For the first time in six years the United States has intervened in currency markets to support Japan’s troubled yen, helping to push up its value against the dollar and making clear that further action will be taken if needed. President Clinton described this shift away from a hands-off policy as a signal to the markets of U.S. support for reforms in Japan’s economy.

The signal seems to have been understood. The yen, which lost 15% of its value over the past three months, immediately strengthened and international markets that had been shaken by concerns over Japan’s weakened economy--and its effect on the rest of Asia--rallied.

But the psychological effects of the U.S. intervention are likely to prove fleeting unless Japan now moves vigorously to do what it should have done years ago, before it entered a crisis that has seen property and securities plummet and unemployment rise to a level not seen in decades. Now Japan must act promptly to stimulate demand, reform its ailing banking system and open its markets to greater competition.

Promises that more effective measures will be taken may have been made by Tokyo in exchange for Washington’s action. Clinton spoke to Prime Minister Ryutaro Hashimoto just hours before moving to support the yen. He has also sent to Japan a high-level delegation led by Deputy Treasury Secretary Lawrence Summers to discuss both Japan’s economy and the larger financial crisis in Asia. Japan’s troubles have exacerbated those in other countries, nowhere more so than in South Korea. The weakened yen has raised fears of further currency devaluations there and elsewhere--perhaps including China--that at a minimum would retard recovery from last year’s economic crash.

Japan’s biggest problem remains the reluctance of its politicians and the powerful Finance Ministry to acknowledge the depth of the economic crisis. The latest stimulus package, which won’t take effect for many months, is no substitute for stringent structural reforms.

Protectionism in one or another guise and an excessive coziness among government, business and the banks have for too long shielded Japan from the discipline imposed by true competition. Only now, late in the day, is deregulation of the financial system starting to take hold. The United States should in its own interests and those of global economic stability lend a hand, as it is now doing. But in the end Japan must find the will, wisdom and political courage to chart a course out of this crisis.