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To: Ahda who wrote (16556)	8/25/1998 2:11:00 PM
From: Alex	Respond to of 116762

SOURCES: US RECOGNIZES RELATIVE FUTILITY OF YEN INTERVENTION By Steven K. Beckner ÿÿÿÿÿMarket News International - As Japanese officials sent mixed signals about their intentions regarding foreign exchange intervention to impede the yen's depreciation, U.S. officials confided that, realistically, there is a strict limit to what intervention can accomplish. ÿÿÿÿÿWhile the threat of intervention can hope to keep foreign exchange traders off guard and make speculation against the yen less of a one-way bet, the reality is that Japan's dismal fundamentals doom the yen to further depreciation in the months ahead, U.S. monetary sources said. ÿÿÿÿÿWith the Japanese government still floundering about in its effort to rebuild its shattered financial system and with the Japanese economy continuing to deteriorate, the yen will simply have to sink further if Japan is to recover, the sources said. ÿÿÿÿÿIf Japan and/or the United States try to stabilize the yen at current levels, the only alternative is to force further deflation of wages and prices in Japan, the sources said. In other words, if the value of Japan's currency is not allowed to fall, the prices of Japanese goods and services will have to fall. ÿÿÿÿÿThis is well understood in both Washington and Tokyo. While Japan has intervened from time to time, joined by the United States in mid-June, and while further intervention has been threatened, sources indicate the intent is merely to moderate the pace of yen depreciation, not to halt or reverse it. ÿÿÿÿÿWith U.S. economic fundamentals so much stronger than those of Japan and with interest rate spreads reflecting that fact, a further dollar rise against the yen is almost inevitable for the foreseeable future, sources said. ÿÿÿÿÿThis is a state of affairs recognized, albeit somewhat reluctantly, by authorities in both capitals. The U.S. has not ruled out further joint intervention with Japan, and unilateral intervention by the Bank of Japan could come at almost any time, but any intervention should be seen as nothing more than a brief holding action, rather than a determined effort to fix the dollar-yen rate at any particular level. ÿÿÿÿÿThe joint U.S.-Japan intervention of June 17 succeeded temporarily in knocking the dollar from around 142 yen to as low as 133.80, but since then the dollar has climbed back to near 145 yen. Following interventionist saber-rattling by Eisuke Sakakibara, Japanese Vice Minister of Finance for International Affairs, on Monday, Finance Minister Kiikchi Miyazawa toned down the rhetoric by saying intervention would take place only if he detected "disruption" in the market but that he did not see such "disruption" now. ÿÿÿÿÿU.S. authorities do not like the disruption to U.S.-Japan bilateral trade relations growing out of the yen's decline, but are keenly aware that Japanese deflation could have even worse consequences. Therefore, Treasury Secretary Robert Rubin has been willing to tolerate yen depreciation that would have been considered intolerable a year or two ago. ÿÿÿÿÿNone of this is to say either country wants to see a yen free fall. Among other reasons, yen depreciation undermines Japanese banks' capital, which is valued in yen, while much of their loans are denominated in dollars. [TOPICS: MNSFED] 11:29 EDT 08/25 c 1998 Market News Service, Inc. economeister.com