To:John Barendrecht who wrote (131)
From: John Barendrecht Monday, Jun 23, 1997 10:00 PM
Respond to of 79913
US markets see Hashimoto remarks as veiled threats
By Isabelle Clary
NEW YORK, June 23 (Reuter) - U.S. financial markets perceived Japanese Prime Minister Ryutaro Hashimoto's latest call for U.S.-Japan foreign exchange cooperation as ``a veiled threat,'' analysts said on Monday.
``It's a veiled threat, a reminder that Japan cannot carry the burden alone, that the United States cannot wash its hands of its responsibility toward the dollar,'' said Chris Turner, director of research at the advisory firm I.D.E.A.
Some confusion surrounded Hashimoto's remarks, delivered in Japanese in a question-and-answer session in New York.
``In the past, we were tempted to sell U.S. Treasuries and buy gold when I was involved in car negotiations with (then U.S. Trade Representative) Mickey Kantor and when the U.S. was not interested in the dollar, a world key currency, when it was fluctuating wildly,'' Hashimoto, a former trade minister, said.
``So please cooperate with us to stablize exchange rates in order to prevent us from being tempted to sell U.S. Treasuries and buy gold,'' Hashimoto added.
The comments forced the Dow Jones industrial average down 192.25 points for its second-largest point decline in history.
Dollar/yen extended its losses on the comments, testing support at 114.45 late on Monday in New York, where it had opened at 115.30/40.
Also, the 30-year Treasury bond fell 17/32 to 98 31/32, yielding 6.70 percent, while the COMEX August gold contract gained $1.70 to $341.00 an ounce.
Traders said Hashimoto's comments caught U.S. markets by surprise since they came right after the just-ended Denver, Colo., summit that offered no fresh insight about an eventual foreign exchange cooperation among the Group of Seven leading industrial nations.
``Hashimoto's comments were seen as a response to last week's rumors, coming from a variety of sources, that the dollar/yen policy will be a Japanese story if the U.S.-Japan trade surplus becomes a problem,'' Turner said.
In the past, foreign exchange markets have been prompt to sell dollar/yen on the view the United States would let its currency drift lower to help cap the trade gap with Japan.
``If anything, Hashimoto's comments show there was no new (foreign exchange) agreement at the G7,'' Turned stressed.
``Hashimoto's story today is basically your response to Washington,'' Turner added.
If Japan, a huge holder of U.S. government securities, were to start selling Treasuries, this would pressure the dollar. It would also force U.S. market rates higher, making it more costly for the United States to finance its large current account deficit.
``Japan does not want the yen to break below 110.00. It's a warning to Washington as Hashimoto drew a close parallel with the 1994-95 trade talks,'' Turner also noted.
Dollar/yen set a cycle high at 127.47 on May 1 only to weaken anew, setting a recent low of 110.62 on June 11.
MMS International senior analyst John Krey agreed with Turner's assessment.
``I don't think there was any special agreement on foreign exchange at the G7, except to reaffirm their intention regarding relatively stable foreign exchange,'' Krey said.
``This is more political posturing. It can be interpreted as a veiled threat in the event we could not come to some deal about trade,'' added Krey who stressed that Japan ``essentially is a mercantilist economy'' and that the dollar's upside against the yen is limited unless U.S. imports to Japan increase.
Carol Stone, deputy chief economist at Nomura Securities International, pointed out that Japan's threat to sell U.S. Treasuries was not new and that Hashimoto's remarks should not be taken too literally.
``Mr. Hashimoto said what would happen if foreign exchange moves where substantial. There is nothing new there, it's not imminent,'' Stone said. ``Mr. Hashimoto seems quite independent in some of the financial and monetary policies that he wants to pursue. That's not necessarily the view of the other G7.''
Meanwhile, in a statement issued to clarify Hashimoto's remarks Japan's Vice Finance Minister for International Affairs Takatoshi Kato said Japan will continue to cooperate with the United States to stabilize foreign exchange rates.
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