WASHINGTON -- The head of the Bank of Japan strongly hinted yesterday that he was prepared to reverse course and act to halt a three-month-long rise in the value of the Japanese yen, before it chokes off Japan's fragile economic recovery and triggers further clashes with the United States.
In early trading in Australia and Asia, the vaguely worded announcement from Masaru Hayami, governor of the Bank of Japan, and a communique issued Saturday night by the finance ministers of the Group of Seven (G-7) proved enough to strengthen the dollar and weaken the yen.
The dollar was trading last evening at about 105.60 yen, up from 104.09 at Friday's close in New York.
Although Hayami denied he was changing course, his statement appeared to mark a full retreat from the position the bank took less than a week ago, when it defied Japanese politicians and Washington by refusing to stop the 17 percent rise in the yen's value.
The behind-the-scenes struggle over Japan's monetary policy dominated the opening this weekend of the annual meetings of the World Bank and the International Monetary Fund, which are also focusing on corruption in Russia.
Hayami's comments yesterday are also important because Wall Street reacted badly to last week's moves by the Bank of Japan. Investors feared that more expensive Japanese goods could help trigger inflation in the United States. That, in turn, could persuade the Federal Reserve to raise interest rates, slowing the economy.
The G-7 ministers, in a statement last night, put the onus on Japan to solve the problems being triggered by the surprising strength of the yen. Only if Japan acted to loosen further what the bank already considers a dangerously loose monetary policy -- interest rates are already at zero in Japan -- would the other countries consider stepping in and intervening in the currency markets to weaken the yen, the statement suggested.
Pub Date: 9/27/99