: DOLLAR-YEN TO GAIN ON A SUMMERS PROMOTION
By Claudia Hirsch
NEW YORK (MktNews) - A promotion for Lawrence Summers may be good news for dollar-yen, despite a possible kneejerk selloff if U.S. Treasury Secretary Robert Rubin steps down and his deputy steps up, traders and analysts said Friday.
Despite Rubin's flat denial Thursday evening that he would leave his position, rumors of his imminent resignation still percolate through the foreign exchange and fixed income markets, traders said.
But dollar-yen has seen only muted impact from the most recent Rubin resignation talk, with some traders saying the market has cried wolf a few times too many. Such rumors have circulated for years now, they said.
Rubin has been closely associated with strong-dollar policy since he began as Treasury Secretary and is widely considered to be one of the drivers behind the dollar's relative strength since hitting an all-time low under 80 yen in April of 1995, not least because his strong-dollar refrain has been consistent, traders said.
"Rubin is extraordinarily competent," said Anne Parker Mills, foreign exchange economist at Brown Brothers Harriman.
She said his deputy, Lawrence Summers, might be a savvy replacement choice for the administration. Mills said market players are "getting comfortable" with Summers.
She said the Administration will be cautious not to select a "clumsy replacement" for Rubin if the possibility becomes a reality, and will likely choose someone who's "comfortable in the markets and whom markets are comfortable with."
"They don't want an American Lafontaine," Mills said, referring to the former German finance minister, whom many in the markets perceived as unfriendly to the business sector. Amid political furor and a split with German Chancellor Gerhard Schroeder, Lafontaine resigned last week.
Summers is in fact seen by some players as a bit more antagonist toward Japanese economic policy than is Rubin, and so may take a tougher line with the Japanese as they try to dig their way out of a protracted recession.
For that reason alone, Summers' appointment might ultimately wind up benefitting dollar-yen, even if dislocation upon Rubin's exit might initially trip dollar sales, some said.
"The kneejerk reaction will be to sell anything dollar related, but it'll last as long as it takes to announce that Summers is taking over," said a trader at a large U.S. bank in London.
He said basic similarities in policy between the two Treasury officials is a boost to market confidence in Summers.
Traders also cited as precedent the dollar's reaction to former Federal Reserve Chairman Paul Volcker's 1987 resignation, which saw the dollar dip then briskly rebound and ultimately strengthened.
Some traders were more sure than others that despite the official denials from Rubin and the Administration, the highly respected Treasury Secretary will curtail his tenure ahead of schedule.
"I really don't think Rubin's going to stick around till" the next President takes over, said a salesperson at a Japanese bank in New York.
"If he steps down before then, he can resign as one of the greatest Treasury secretaries in history," she said.
Market volatility might greet a political changeover when U.S. President Bill Clinton's term ends, however, and possibly color the market's perception of whoever heads up Treasury, she said.
Some players contend that the administration's promotion of Summers has already begun, even if officials claim the contrary.
The salesperson did caution, however, that a Rubin replacement might subtly tame Rubin's dollar bullish mantra in front of the November Presidential race to avoid fallout at the polls from sectors of the economy that want to see U.S. exports increase.
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