WASHINGTON — A high-powered, multinational move to arrest the steep fall of the dollar emerged Wednesday as Japanese Finance Minister Kiichi Miyazawa met with Treasury Secretary James A. Baker III and interest rate cuts appeared imminent in both Japan and West Germany.
But Miyazawa left the hastily scheduled meeting in Washington apparently without a firm agreement from Baker to intervene in currency markets to support the dollar.
The two finance officials issued a joint statement expressing dismay at "recent instances of temporary instability in exchange markets" and "reaffirmed their willingness to cooperate on exchange-market issues."
Miyazawa, in a press conference after a meeting that lasted more than two hours, emphasized that Baker's agreement to the statement marked an acknowledgment by the Reagan Administration that this week's sharp upward move in the yen justifies cooperative action.
According to reports in the Japanese press, Miyazawa was expected to offer a reduction in Japan's discount rate--a key interest rate controlled by the Japanese central bank--by half a percentage point as a way of stimulating Japanese economic growth. In exchange the United States would agree to intervene in currency markets to stabilize the value of the dollar.
"The objective of my visit has been fully achieved," Miyazawa told reporters after meeting with Baker. "But I have a feeling the United States will not be in a position to officially comment on whether they would intervene in exchange markets."
Miyazawa acknowledged that he could not promise the Japanese central bank would cut the discount rate. "There was no in-depth discussion about interest rates," he added.
Nonetheless, lower interest rates appear to be in prospect in West Germany as well as Japan. Market analysts in Frankfurt predicted Wednesday that the West German central bank also would cut its discount rate by half a percentage point to stimulate economic growth in that country.
West Germany is planning to cut its key interest rate from 3.5% to 3% today in an effort to brake the slide of the dollar on foreign exchanges, Frankfurt banking sources told reporters. But the West German central bank, which has scheduled a policy meeting today, may attempt to counteract the stimulative effects of such a rate cut by other monetary actions aimed at preventing other interest rates from falling.
Miyazawa said Monday that he and West German Finance Minister Gerhard Stoltenberg had discussed ways to react to the dollar's fall. The dollar is worth nearly 6% less in West German marks than it was on New Year's Day.
Stimulation of Growth
Reagan Administration officials have repeatedly urged the governments of Japan and West Germany to boost government spending, cut interest rates and lower taxes in an effort to stimulate growth of their domestic economies. That, Treasury officials argue, would help right the U.S. trade deficit by reducing the need for foreign firms to export to the United States and by boosting overseas demand for U.S. goods.
Otherwise, U.S. officials said, the value of the dollar would have to fall still further. That would ameliorate the trade problem by reducing the cost of U.S. goods sold overseas and increasing the price of foreign goods in the United States. But a continued drop in the dollar also runs the risk of boosting American inflation and interest rates while severely damaging nations that export to the United States.
Currency dealers appeared to be counting on some success in the next few days in arresting the dollar's slide.
On the Tokyo market, the dollar's value closed at 153.60 yen, up 1.35 from Tuesday's close. Trading in New York also saw the dollar higher against the yen and major European currencies.
The traders' confidence was bolstered by Federal Reserve Chairman Paul A. Volcker, who told a Senate committee Wednesday that he believes the dollar has reached a point "reasonably close to what should be a competitive level."
Volcker also repeated his warning that it is dangerous to rely on a plunging dollar as the only cure to the nation's massive trade deficits.
At the same time Volcker, testifying before the Senate Banking Committee, was at pains to lay to rest speculation that he is sharply at odds with Administration policy or that he believes the sliding dollar's fall has reached a crisis stage.
"I have no disagreement with Administration officials I talk to. There is a consensus on the point that if nothing else is done, there are real risks in that course," Volcker told the committee. He warned that "there is no question that it is not a sensible policy to drive the dollar down until you see an improvement in trade."
Meanwhile, the head of Reagan's Council of Economic Advisers denied repeated speculation that the Administration has set a specific target zone for the dollar to drop to. "I would prefer that we get the adjustment a different way" with more economic growth abroad and lower budget deficits at home, said Beryl W. Sprinkel, the economic council head.
In his testimony, Volcker stressed the same point. He said the dollar today is at about the same level of about 152 yen that existed when he last addressed the issue on Sept. 24. He conceded, however, that the dollar has since dropped sharply against the mark and other European currencies.