WASHINGTON -- A sharp drop in the U.S. trade deficit helped lift the dollar yesterday from record lows against the Japanese yen and the German mark. But the lift was not enough to calm foreign exchange markets or stem demands from abroad for action by the United States to bolster its battered currency.
The Commerce Department reported that the trade deficit -- the difference between what the United States buys from abroad and sells to other countries -- plunged by 24.6 percent in February, its sharpest drop in more than three years.
Eager to help push up the dollar, Clinton administration officials hailed the report and suggested that it might herald the beginning of a long-term decline in the deficit. The figures showed both a modest rise in exports and a surprising drop in imports.
After the government announced the $9.01 billion deficit for February, the dollar edged up from post-World-War-II record lows, settling at 81.40 yen in late New York trading, up from 80.57 yen on Tuesday. Earlier yesterday, in Asian trading, the dollar had fallen as low as 79.75 yen. The dollar rose to 1.3720 German marks yesterday, up from 1.3520 on Tuesday.
But many economists said they did not expect the February decline to give the dollar major support, partly because they viewed the trade deficit numbers as a return to normal levels after the deficit soared by two-thirds, to a record $12 billion in January.
"I don't think today's trade numbers have a strong meaning for the yen-dollar rate," said Masato Nakai, senior economist for the Mitsubishi Bank in New York. "The market sentiment is still for a stronger yen."
With many currency traders intent on pushing the dollar lower, there was a growing chorus of calls yesterday from U.S. allies for Washington to do more to bolster the dollar than occasionally intervene in the currency markets. Such pressures are expected to grow as finance ministers and central bankers from the Group of Seven industrial nations prepare to meet this weekend in Washington.
Speaking in unusually blunt terms, Yasuo Matsushita, governor of the Bank of Japan, called on the United States to put its economy in order by reducing its budget deficit.
On Tuesday, Michel Camdessus, managing director of the International Monetary Fund, called on the Federal Reserve to raise its interest rates. Such a move would in theory help lift the dollar by making deposits denominated in the currency more attractive to foreign investors.
But with Republicans in Congress intent on cutting taxes, many currency traders and foreign officials are convinced that the budget deficit will balloon rather than decline. And with the U.S. economy starting to slow, neither the Federal Reserve nor the Clinton administration appears eager to lift interest rates.
Scott Pardee, a former Federal Reserve official who is a senior adviser at Yamaichi America International, said he doubted that the central bank would raise rates to support the dollar.
"For the Fed, the dollar is just one of many of the things they look at," he said. "Domestic indicators show that growth is slowing and inflation has picked up a little, but not enough to create a compelling case for the Fed to tighten."
Speaking about yesterday's report, U.S. trade representative Mickey Kantor told reporters in a conference call, "We're delighted with all these numbers and we hope it continues, but I should say this is just one month." He was especially encouraged that the U.S. trade deficit with Japan had fallen for the fourth consecutive month.
Asserting that the recent 20 percent plunge in the dollar against the yen occurred too recently to have a major effect on the trade deficit with Japan, Mr. Kantor insisted that the deficit with Japan had fallen largely because of increased U.S. competitiveness.
Many economists say it will take six to 12 months for the recent drop in the dollar to reduce the trade deficit by making U.S. exports cheaper and foreign goods more costly.
For February, the U.S. trade deficit with Japan slipped by 3.2 percent, to $4.71 billion, with exports jumping by 13 percent, to a record $5.03 billion. The Clinton administration was encouraged that imports from Japan rose far more slowly, up 4.7 percent, to $9.74 billion.
Exports in February, seasonally adjusted, rose to their second-highest level ever, climbing to $62.4 billion, up 2.4 percent from January. Imports slid 2 percent, to $71.43 billion.
Probably the worst news in the February report was the soaring trade deficit with Mexico, which was aggravated by Mexico's austerity budget and the 50 percent drop of the peso against the dollar since December. The deficit with Mexico jumped to $1.25 fTC billion in February, up from $863 million in January. In December, the United States had a $19 million trade surplus with Mexico.
The trade deficit with China narrowed to $1.91 billion in February, down from $2.72 billion in January. The deficit with the European Union shrank to $122 million from $1.03 billion in January.