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Article IHT Print Page Copyright 2002 The International Herald Tribune | www.iht.com Dollar's steep slide slows Eric Pfanner/IHT IHT Wednesday, October 1, 2003 Japan's intervention helps the U.S. currency LONDON The dollar slowed a dizzying slide Tuesday after Japan, fearing the economic impact to its exports, intervened to weaken the yen in currency markets despite a recent plea from the world's richest nations to demonstrate "flexibility" on foreign exchange rates. In response, the dollar rose, easing pressure on the yen, which has climbed rapidly in recent months as investors bet that an economic recovery is around the corner. But the U.S. currency fell for a second day against the euro, hurting prospects for a sluggish European economy that can ill afford a stronger currency. Officials at the U.S. Treasury did not return a call seeking comment on the intervention Tuesday. But Washington has made no secret of its efforts to discourage the Japanese and other Asian countries from trying to keep their currencies from rising, a policy that American manufacturers say makes their exports uncompetitive. Tokyo, meanwhile, is worried that a rapidly rising yen will snuff out a Japanese economic recovery. Analysts say the White House has, in effect, abandoned a long-standing policy of supporting a strong dollar, as it seeks ways to keep the U.S. economic recovery moving forward. The latest economic data, including a report Tuesday of a sharp drop in consumer confidence, suggest that the recovery remains hesitant. U.S. Treasury Secretary John Snow has consistently denied that the strong-dollar policy has lapsed, but he has defined it in a way that has little to do with the dollar's foreign-exchange value. "The U.S. has long abandoned its strong-dollar policy," said Stephen Jen, chief currency economist at Morgan Stanley, in a note to investors. "But it will not adopt an explicitly weak-dollar policy, because of its concerns for the bond market." The Japanese authorities spent 4.457 trillion, or $40.3 billion, from late August through late September in their efforts to weaken the yen, according to the Ministry of Finance in Tokyo. But analysts it said had probably refrained from intervening since a meeting of the Group of 7 industrialized nations two weekends ago. The G-7, in a move that Snow called a milestone, at that time issued a call for greater flexibility in the currency markets, a message that was directed at Japan and other Asian countries. But after watching the yen climb by more than 5 percent over the last two weeks, Japan intervened twice on Tuesday, traders said. The first sale of yen for dollars occurred during the late afternoon, Tokyo time. After business hours in Japan, however, the dollar fell again, to near the key level of 110, so the Japanese authorities apparently asked the Federal Reserve Bank of New York to intervene on their behalf. The Japanese Ministry of Finance confirmed the interventions to news agencies, though a New York Fed spokeswoman, Linda Ricci, refused to comment. By late Tuesday, New York time, the dollar had rebounded to 111.435 from as high as 110.12 earlier in the day. Though the New York Fed apparently carried out at least some of the intervention, that does not mean that the Fed, or other U.S. officials, endorse Japan's efforts to stabilize the yen. Central banks have agreements under which they can use custody accounts held at other banks, at times such as Tuesday, when business hours make it more practical to do so. With the Japanese intervening to support their currency, the euro has had to bear much of the burden of absorbing a weaker dollar. That process continued Tuesday as the euro rose to $1.1646 from $1.1596 late Monday. After a summer lull, the euro is rising again, hurting already dismal growth prospects in the 12-country single currency bloc. Stock prices fell sharply on European markets as investors digested the news, which could hurt corporate earnings. Analysts said that while the G-7 statement endorsed flexibility in foreign-exchange markets, it was worded in an ambiguous way that did not necessarily rule out intervention. The Japanese, watching the rapid climb in the yen, could argue that it moved too far, too fast. International Herald Tribune Copyright 2002 The International Herald Tribune

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