TOKYO — Prime Minister Yasuhiro Nakasone told a parliamentary committee Wednesday that a pledge he won last week from President Reagan to defend the dollar represented an unprecedented success for Japan in its effort to halt the yen's appreciation. But the Tokyo Foreign Exchange Market disagreed.
After two Japanese national holidays Monday and Tuesday, the dollar fell 1.70 yen, or 1.2%, to 138.60 yen in Tokyo trading, its second-lowest closing price here. On April 27, the dollar set a record low of 138.10 yen for a closing.
In New York trading, the dollar stabilized and closed at 138.85 yen.
Traders attributed the plunge to the market's reading that Nakasone, contrary to his claim, had failed to win any new promise from the United States to halt the fall in the value of the dollar relative to the yen. A higher-valued yen hurts Japan because it boosts the prices of Japanese products abroad.
Neither renewed intervention by the Bank of Japan, nor a statement by its governor that the United States was raising interest rates in coordination with a lowering of short-term interest rates in Japan, were able to halt Wednesday's decline, which accelerated in afternoon trading.
Testifying to the Budget Committee of Parliament's upper house, Nakasone pointed to a joint statement on economic policy that he and Reagan issued Friday after two days of talks in Washington.
"Both countries confirmed they would promote the value of the dollar. There has been no instance before in which the United States in such a specific way expressed its resolution (to defend the dollar)," Nakasone declared.
He called the joint declaration an "expression of immovable resolve" and a "firmed-up base" for stabilizing the yen-dollar exchange rate. "It was one achievement of my trip," he added.
On other issues, Nakasone said his visit to the United States had not achieved all that he had hoped for, but he did not elaborate.
Wednesday's currency trading here more than wiped out a gain of 1.50 yen that the dollar registered Friday in reaction to Nakasone's disclosure in Washington that the Bank of Japan was engaging in market operations to drive down short-term interest rates. Federal Reserve Board Chairman Paul A. Volcker, the same day, said the U.S. central bank had tightened credit to raise American interest rates and defend the dollar.
Satoshi Sumita, governor of the Bank of Japan, confirmed at a news conference Wednesday that the United States and Japan were carrying out a joint maneuver to enlarge the gap in interest rates between the two countries in the hopes of drawing more Japanese capital into dollar-denominated investments.
Won't Drop Rate More
But he declared, both at the news conference and in Parliament, that the Bank of Japan will not again lower its central discount rate, at which the central bank loans funds to commercial banks. Noting that five cuts in the rate, to 2.5% from 5%, had already been carried out since the beginning of 1986, Sumita said interest rates now are unprecedentedly low.
"In an environment in which prices of stock and of land in the Tokyo region are rising rapidly, another decrease of the central discount rate would be inappropriate," he declared.
A strengthening of the dollar's value--one of Nakasone's major objectives in visiting Washington--would provide a much-needed boost to the beleaguered 68-year-old leader's political fortunes. The yen's appreciation of more than 70% in the last 19 months has eaten deeply into profits of export-oriented manufacturing firms, curtailing growth in last year's gross national product to 2.5%, the lowest in 12 years.
The sluggish economy and a highly unpopular proposal for a 5% value-added sales tax have helped to drive Nakasone's ratings in opinion polls down to around 25%, compared to ratings of more than 60% last fall, when he won a one-year extension of his term in office.
Kondo Tetsuo, director of the Economic Planning Agency, acknowledged for the first time Wednesday that the yen's appreciation had cast doubts on whether the economy can grow 3.5% in fiscal 1987, as the government has predicted.
Nakasone, who in Washington described retaliatory tariffs imposed by Reagan last month as "a thorn that is sticking in a very sore small finger," claimed that he had won a de facto promise from Reagan to lift the 100% tariffs on three categories of Japanese electronic goods before a seven-nation economic summit is held June 8-10 in Venice.
The prime minister told Parliament that he would "faithfully" carry out his promise to implement a 5-trillion yen ($35.7-billion) government spending program to enlarge economic demand at home. A supplementary budget will be compiled as quickly as possible after the upper house gives its final approval to the regular fiscal 1987 budget, he said.
He added that he hopes that Parliament will enact it by August.
Tax cuts, he reiterated, would be included in the extra budget only if an assurance for a future increase in indirect taxes could be obtained in negotiations with opposition parties.