Advertisement
YOU ARE HERE: LAT HomeCollections

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

Economy: Treasury official would go to Tokyo as part of effort. Plan is discussed as investor fears grow that currency's slump could drag more of Asia into recession.

June 17, 1998|ART PINE | TIMES STAFF WRITER

WASHINGTON — 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.

Advertisement
Los Angeles Times Articles
|
|
|