U.S. Performs Balancing Act on Yen
The Clinton administration scrambled Friday to keep its rescue effort for the Japanese yen from lurching off track, warning global currency markets against expecting specific plans to emerge from meetings of international financial officials in Tokyo this weekend.
Treasury Secretary Robert E. Rubin sent the message Friday afternoon because currency traders were bidding up the yen in anticipation of an imminent announcement of agreements to restructure the Japanese economy and stabilize Asian currencies.
“We have said from the beginning there will not be policy actions” at the Tokyo meetings, Rubin said in a Reuters interview.
No sooner had Rubin’s comments crossed traders’ screens than the yen, which had surged in the morning to its highest level in more than a month, began to plummet in value. It fell by more than 3 yen per dollar Friday afternoon--an unusually large change for such a short interval--to 137 yen per dollar, before recovering some of its losses. It closed at 136.10 per dollar.
Wall Street stocks closed sharply lower, in part because of Rubin’s comments. The Dow Jones industrial average fell 100.14 points, or 1.14%, to close at 8712.87.
“I think there were excessive expectations about the outcome of these meetings in Tokyo that probably got the guys at Treasury a little scared,” said Michael Scarlatos, a currency strategist at Bankers Trust in New York. “I’m sure they felt that things were beginning to get a little bit out of control.”
The yen’s wild ride underlined the difficulties confronting the administration in containing the Asian financial crisis, which has reached a dangerous new phase in recent weeks as big countries such as Japan, China and Russia come under financial pressure.
Washington is anxious to stop the yen from continuing a slide that gathered force earlier this month, because Japan’s economy dominates Asia, and the weakness in Japanese growth and the yen threatens to throw Tokyo’s neighbors into even deeper crises than before. Those concerns prompted Rubin on Wednesday to join Japanese financial authorities in a surprise operation to boost the yen by buying billions of dollars of the currency with government funds.
But currency markets are notoriously prone to swings from one extreme to the other, and Friday morning, the yen’s strength was proving way too much of a good thing from the Treasury’s point of view. U.S. officials saw no hope that the Tokyo meetings would produce the kind of dramatic results traders were expecting, so they were forced to throw cold water on such speculation for fear that disappointed traders would dump massive amounts of yen next week--driving down its value and triggering a renewed crisis.
