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BOJ lauded on yen stance
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September 27, 1999: 2:40 p.m. ET
Analysts: Treasury likely to be more willing to helping control yen's rise
By Staff Writer M. Corey Goldman
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WASHINGTON (CNNfn) - The Bank of Japan's efforts to ease its monetary policy and weaken the yen are being received favorably by the U.S. and other Group of Seven industrialized countries - and will more than likely help it garner support for coordinated intervention should the need arise down the road.
Speaking late Saturday at the International Monetary Fund-World Bank annual meetings, Bank of Japan Governor Masaru Hayami hinted Japan may act to slow down the yen's sharp rise.
His remarks were in stark contrast to the Japanese government's comments last week, when it refused to single-handedly stop its currency from appreciating. And Hayami's latest remarks were well received by the G-7, the organization of the world's seven richest industrialized nations, who want Japan to expand its money supply in order to boost spending and stimulate the economy.
A communiqué released by the G-7 outlining the progress of their discussions during this week's meetings and seminars gave an uncharacteristic nod to Japan's actions. "We shared Japan's concern about the potential impact of the yen's appreciation for the Japanese economy and the world economy," the communiqué said.
Welcome vagueness
Currency markets shared the optimism, pushing the U.S. dollar up almost 2 percent against the yen by midday Monday.
But since mid-May, the yen has appreciated almost 15 percent against the U.S. currency, strengthening to 103 yen to the dollar from 124.75. The increase in the yen's value threatens to make Japanese goods more expensive abroad, slowing the country's fragile recovery.
Economists, too, welcomed the Bank of Japan's candidness in dealing with the appreciation of its currency and clarifying for financial markets what it intends to do.
At the same time, the central bank will have to follow through with its promises to retain the confidence of its fellow G-7 members and of financial markets. The other G-7 members are the United States, United Kingdom, Germany, Italy, Canada and France.
"The Bank of Japan is taking a little step towards trying some remedies," said Michael Gregory, an senior economist with Lehman Brothers. He added that, in exchange, Treasury Secretary Lawrence Summers "now appears to be more conducive to helping them."
Gregory said he expects the yen to return to a level of about 120 yen to the dollar by the end of the year as the outlook for Japanese growth subsides somewhat. The Japanese economy has expanded for two consecutive quarters this year after contracting through all of 1998.
Questionable methods
At issue has been Japan's methods of dealing with its rapidly appreciating currency. The central bank has intervened in currency markets from time to time to buy up yen with its U.S. dollar reserves, but it has not distributed the net effect of doing that back into its economy.
Although both the G-7 communiqué and remarks from Japan's central bank were worded extremely carefully to avoid any direct promises, "the chance of the U.S. Treasury being more open to coordinated intervention down the road seems to be a much higher probability," Gregory said.
In other words, if the yen does get out of hand again, the U.S. and other G-7 nations would be more willing to step up to the plate and intervene jointly with the Japanese government, analysts said. The U.S. Treasury, in particular, rarely intervenes alongside Japan, and Summers, who took his post at the helm of the Treasury in July, has never coordinated such an effort.
"I think the agreement that's stated by the G-7 will hold," Sidney Weintraub, a political economist with the Center for Strategic & International Studies told CNNfn. "There must have been some compromises within Japan with the finance ministry and the Bank of Japan" to change their position, he said. 
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