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To: Thomas M. who wrote (2181)	10/17/1999 9:48:00 AM
From: oilbabe	Read Replies (1) \| Respond to of 3536

SINGAPORE, Oct 17 (Reuters) - A policy shift by the Bank of Japan last week has set the stage for joint foreign exchange intervention to support the dollar if needed, former Japanese vice finance minister Makoto Utsumi said on Sunday. ``There might be growing concerns among (tripolar) currency regions, the U.S. dollar region, the Japanese yen region and the euro region,' about the dollar, Utsumi told Reuters Television. ``Until the G7 meeting last month, the...attitude of the Bank of Japan was a kind of stumbling stone to prevent the harmonised action.' ``But now I think this stumbling stone is removed.' The BOJ decided last Wednesday to maintain its loose monetary policy and ``flexibly' expand its market operations to make that policy more effective. The central bank said it would introduce outright purchases and sale of government short-term debt, and expand the range of Japanese government bonds for repo operations, seen providing more tools if the yen resumed its appreciation. On Friday, the dollar tumbled sharply to 105.45 yen and also fell to its lowest level in nearly seven months against the euro in the wake of a slide in U.S. asset markets. FEARS OF U.S. RATE RISE Fears of a near-term U.S. interest rate rise that could add to financial market weakness plagued the dollar, along with a warning by Federal Reserve Chairman Alan Greenspan late Thursday that banks should take precautions against such a sell-off. ``Depending on what would happen further in the market, there are good conditions for three polar currencies to do something together,' Utsumi said. ``If the yen-dollar rate, for example, goes much beyond (the) actual level and at the same time the dollar weakens vis-a-vis the euro too, the conditions might be closer to realisation of coordinated action.' Asked to explain the BOJ policy move, Utsumi said the central bank was concerned about further yen appreciation. ``They might have thought that they also cannot neglect the importance of the exchange rate. This is a huge difference with the stance they expressed September 21,' he said. At that time, the BOJ rejected international pressure for a further easing despite a sharp rise in the yen. Utsumi said foreign exchange remained ``enemy number one' for the Japanese economy because of its potential impact on business and investor sentiment. ``I think 105 yen (to the dollar) is a yellow signal...while close to 100 yen is a red signal,' he said. Utsumi said there were two possible outcomes for Japanese markets if the U.S. asset slide continued -- a domino scenario in which Tokyo would tumble in New York's wake or that Japan would take on safe haven status, pulling in investment from the United States. ``The probability of the second scenario is becoming more and more, 'Utsumi said.

To: Thomas M. who wrote (2181)	10/17/1999 1:05:00 PM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 3536

Hi Thomas, Ah the wonderful world of balance of payments statistics -g-. I would be interested in seeing those numbers in context of the rest of the numbers. As we've discussed in the past when we run a current account deficit the dollars that go offshore have to be held by foreigners. If the foreigners are unwilling to hold the dollars the dollar will decline until the current account deficit shrinks enough to mop up the excess supply. As the article points out we are running a record current account deficit. So we are putting lots of dollars into foreign hands. They have two choices for using those dollars, either lend them back to us or invest them. So if the amount of dollars in foreign hands is increasing and net foreign lending to the US economy is declining then the it would appear to me that net foreign investment in the US must have been increasing during this period. The article finishes by saying the decline is one of several eery similarities to 1987. He refers to a strengthening world economy being a similarity. I disagree. Throughout the 80s the Japanese economy was on a roar with much of Asia benefiting. By 87 the Japanese economy was showing signs of overheating and the government was beginning to take action to try and deflate the bubble. There are also a number of what I believe are important differences between 87 and 99. In 87 the US banking system was a shambles. We were saddled with bad loans both at home and abroad. The banking system needed significant repair to its capital structure and the world knew it. Japanese banks on the other hand were flush with cash. In addition their loan portfolios were to their own strong domestic markets and the high growth Asian Tigers. It was only later that we learned the Japanese bank capital structure was a house of cards. In 99 the Japanes banking system is only starting to institute much needed reforms. The US banking system is much stronger than 87. While there may be some concerns such as those Chairman Greenspan mentioned last week they pale in comparison to 87. There are other differences between 87 and 99. My own view is that econmics are much more complex than one or two indicators and no two periods are ever truely alike. I find most of the attempts to compare 87 and 99 to be facile. In 87 the gloabal economy was dominated by a seemingly invincible Japan, all the talk was of the coming Asian century. The US and Europe were reduced to pleading for trade protection. My own opinion of the cause for the crash in '87 was that the US started a war of words with Japan that was getting increasingly heated from the summer. Very shortly before the crash James Baker made some comments that pointedly suggested strong anti-Japanese action (my memory is vague this morning on what he actually said). The international markets took one look at the situation and made a decision between the invincible Japan Inc or a US economy saddled with a crippled banking system. They voted to sit out the war sipping rice wine instead of Bud. In 99 we have a fragile world recovery which is dependant on US growth to keep it going . Yes we are also dependant on foreign capital. But what happens in the current situation if foreigners decide not to hold their dollars. As the dollar weakens are appetite for imports will decline as US goods become more competitive. In addition a declining US stock market will hit the wealth effect and also reduce net US demand andthe appetite for imports. A reduction in US import demands would significantly undermine what growth Asia has had. This would lessen the capital demand from those economies. It is my believe that the global situation currently is one that if the US gets a cold Asia will get pneumonia. That doesn't mean a crash is not possible, just that it won't come from the direction the pundits are expecting. History repeats itself but never verbatim.