WASHINGTON -- The dollar fell to another record low against the Japanese yen yesterday after the Treasury released a report on exchange rates that suggested that the yen's rise could reduce the U.S. trade deficit with Japan.
But at the same time, a senior Treasury official, Lawrence H. Summers, said that devaluing the dollar was not the route to increased American prosperity.
The dollar's record-breaking slide continued in early trading this morning in Tokyo despite Japanese government attempts to stabilize the foreign exchange market. The U.S. currency opened at a postwar Tokyo low of 109.17 yen after a steep sell-off in New York and fell to around 108.90 by midmorning in response to a U.S. Treasury Department report.
In late New York trading yesterday, the dollar was at 109.35 yen, down sharply from 110.60 yen Monday. The dollar's previous closing low in New York was 109.86 yen on April 22.
Also putting pressure on the dollar was a report yesterday that showed a drop in consumer confidence, which pointed to slow growth and less likelihood that the Federal Reserve will push up interest rates.
Mr. Summers, under secretary of the Treasury for international affairs, steered clear of saying whether the yen should appreciate further, though he said the yen's rise should help reduce Japan's trade surplus.
Appearing yesterday before a subcommittee of the Senate Banking Committee, Mr. Summers released the exchange-rate report, which said, "A decline versus the yen can be seen as a reflection of forces tending to limit and ultimately reverse Japan's widening trade surplus."
Some traders said that by suggesting that a strong yen could help reduce Japan's trade surplus, the report appeared to be a veiled effort to push the yen higher. But Mr. Summers denied that the report was intended to influence exchange rates.
Echoing recent statements made by Treasury Secretary Lloyd Bentsen, Mr. Summers said, "It is our firm conviction that there is no way to devalue yourself into prosperity."
Most economists say that devaluing a country's currency againstthose of other nations can give a short-term stimulus by increasing exports, but it makes foreign goods and foreign travel more expensive and helps fuel inflation.
Mr. Summers told the banking subcommittee that Japan's economy was operating well below capacity and that its trade surplus continued to rise because of weak domestic demand for imports.
Mr. Summers said Japan's $116 billion stimulus program should be expanded so that Japanese economic growth will be fueled by domestic consumption rather than by exports.
The Treasury report also faulted China for manipulating its currency in a way that helped cause the Chinese trade surplus with the United States to swell to $18.3 billion last year, from $12.7 billion in 1991.