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To: Glenn D. Rudolph who wrote (68638)	7/21/1999 9:09:00 PM
From: GST	Respond to of 164684

Glenn: The currency effect is very much in your favor. Buying a Japanese security that yields nothing could get you 20% upside just from the currency effect. BW ONLINE DAILY BRIEFING BRIDGE NEWS REPORT July 21, 1999 As Japan Struggles to Keep the Yen Down, Not Everyone Is Happy With a Weak Currency Washington--July 21--Prominent U.S. economist Fred Bergsten said today it is a "mistake" for the U.S. to cooperate in Japan's effort to slow the yen's strengthening, and the Bank of Japan's (BOJ) efforts won't succeed over a "prolonged" period. The Japanese central bank confirmed today that the New York Federal Reserve intervened on its behalf in U.S. markets to buy dollars for yen. However, the intervention was not successful even in the short term as the dollar spiked above 119 yen, then sank back to 118.23. Some currency analysts say the BOJ may now be bowing to the markets because of political pressure from countries unhappy with a weak yen and the reality of strong demand for the currency. Bergsten, the head of the Institute for International Economics, believes that the action by the Japanese authorities can "buy some time" and slow the yen's climb. But the former Treasury official in the Carter Administration says such efforts will not stem the tide of higher yen demand due to signs of a Japanese economic recovery. Japanese officials warn that a premature rise of the currency could nip the recovery in the bud. Bergsten stressed that the "equilibrium" rate for the yen is about 100 vs. the dollar and predicts that the Japanese economy will continue to recover, but only "slowly." The economist also criticized the U.S. for helping Japan hold the yen down. This will strengthen Japan's already large trade surplus and "undercuts the pressure on Japan to improve its economic performance through domestic expansion," Bergsten says. When the Fed intervenes in the currency markets on behalf of a customer, as it did yesterday and today, the Fed is not required to ask for the approval of the Treasury Dept., which has jurisdiction over U.S. foreign exchange policy. However, Bergsten notes that the Fed's action still requires "implicit U.S. agreement with the objective" of the policy action. However, despite the Fed's cooperation and the U.S. desire for a Japanese recovery, U.S. authorities are not completely comfortable with too weak a yen. Rob Hayward, a Bank of America currency analyst in London, says U.S. Treasury Secretary Lawrence Summers is following the policy footsteps of his predecessor Robert Rubin, who has "always said Japan had to reform and not export its way out of trouble." He adds: "We just don't know whether the U.S. has been leaning on the Japanese or not. But it makes sense that they wouldn't have been happy with any attempts to drive the yen lower." There have also been reports that some Asian countries are unhappy with a cheap yen as this hurts their exports. Hayward points out that Japanese Finance Minister Kiichi Miyazawa seemed to take a more cautious stance on intervention overnight. At a press conference, Miyazawa admitted that a weaker yen might have some detrimental impact on other countries. Hence, the BOJ appears to be scaling back the size of its interventions. According to Derek Halpenny, currency analyst at Bank of Tokyo Mitsubishi in London, the intervention today and Tuesday probably amounted to only a total of $2 billion. In June, the central bank is widely believed to have blown as much as $20 billion in intervention that pushed the greenback up from around 117.7 yen on June 10, to as high as 122.6 the next day. Some analysts believe that the Japanese authorities may now be just trying to contain the yen's appreciation rather than preventing its rise. By Mark Potter and Edward Kean, BridgeNews