US says it may not support the yen again
By Hugh Davies in Washington and Juliet Hindell in Tokyo
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A WEEK after America's multi-billion dollar intervention in the currency
markets to support the Japanese yen, the Clinton administration
signalled yesterday that, with the initiative apparently failing, it
would not automatically repeat the process.
Lawrence Summers, the Deputy Treasury Secretary, spent the day stepping
up the pressure on the Japanese government to meet its promises on
economic and banking reform, saying Tokyo needed to "take concrete and
early action". After briefing the Senate Foreign Relations Committee on
the crisis, he urged Japan to take advantage of the "window of
opportunity", saying that it "won't always" be open.
Asked if the US might help again to save the yen, he was guarded, and
said: "We are prepared to intervene when it is appropriate, and not
intervene when it is inappropriate." Global speculators took the hint,
renewing their assault on the beleaguered currency. The yen moved back
towards the eight-year, pre-intervention low, although analysts pointed
out that traders had been "burned before" by Treasury Secretary Robert
Rubin's word to Congress earlier this month that intervention only
worked temporarily. This sent them rushing to sell the Japanese
currency, giving him an opportunity to take the market by surprise.
A lack of new initiatives has made the markets nervous and undermined
confidence in the Japanese currency. The yen slid yesterday to below 141
to the dollar. Last week's brief upturn had the yen lingering at a rate
of around 136 for a day or so.
Japan has done its best to reassure the world that it has the situation
in hand. In particular, officials said last Monday that they would soon
announce a plan to rescue the country's troubled banks. The government
said it would come up with a plan before the upper house elections on
July 12. But since then there have been no firm details. Taku Yamasaki
from the ruling Liberal Democratic party, who is overseeing the bank
plan, said Japan would do "major surgery which would result in massive
bleeding" in the banking sector.
Part of the problem is the widely differing estimates of just how large
the bad loans the banks hold are worth. In self assessment the banks
admitted to about 625 trillion yen (œ315 billion) of outstanding loans.
But the authorities have made a lower estimate. However large the bad
loans are, they represent a huge obstacle to economic recovery as they
prevent banks from taking on new loans. Yesterday Japan's Long Term
Credit Bank at last confirmed rumours that it was seeking a merger
partner to prevent collapse caused by huge unrecoverable loans.
The steady decline of the yen begs the question, when will the rest of
the world deem it fit to intervene again? The G7 industrialised nations
and other Asian nations agreed last weekend in Tokyo to intervene if
appropriate. Timing may be closely linked to President Clinton's visit
to China. Beijing urged Tokyo and Washington to shore up the yen last
week saying it would have to devalue its currency, the renminbi, should
the yen fall any further. But so far there have been no hints from Japan
that more intervention is on the cards and analysts say that Tokyo
should not count on America for help.
telegraph.co.uk
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