Dollar to Remain Weak Due to Inability to Stabilize Exchange Rates

Article excerpt

Japan's Finance Ministry exerted ``moral persuasion'' this week on that nation's major commercial banks, securities firms and investment companies, urging them to stop their speculative selling of dollars.

In fact, the Japanese government's move goes beyond mere jawboning. In requiring institutions to give daily data on their foreign-exchange transactions, Tokyo has intensified pressure on the institutions and given a definite hint that, if necessary, it might move to capital controls.

The Japanese government is under mounting pressure from exporters, determined to halt the fall of the dollar and rise of the yen. Although Japan's trade surplus with the United States widened to a record $5.15 billion in April - more than two-thirds of its global surplus of $7.57 billion - Japanese exports, when denominated in yen, have been falling. Japan's contract-based exports fell 9.8 percent in April on a yen basis, the 18th consecutive monthly decline, according to the Ministry of International Trade and Industry.

Akio Morita, chairman of the Sony Corp., told the Japan Society in New York this week, ``It is clear that the weakening of the dollar signifies the weakening of the United States economy.'' The United States, he said, might have to increase interest rates ``to attract foreign capital and control inflation.''

He added, ``It is important to note that the protectionist measures the United States has taken against Japan in the last two months have resulted in continued weakening, rather than the hoped-for strengthening, of the dollar.'' And he warned that, if Japanese and other foreign investors lost confidence in the dollar and the American economy, foreign capital would cease flowing to this country.

Is that already starting to happen? Alan Greenspan, who was chairman of President Ford's Council of Economic Advisers and is now president of Townsend-Greenspan, the economic consulting concern, believes it is. His estimates, based on official data, show that foreign holdings of United States Treasury securities and other liquid assets declined in this year's first quarter and are continuing to come down in the second quarter.

According to his calculations, net Japanese private liquid claims against the United States, which had reached $71 billion at the end of 1986, fell to $66 billion in the first quarter of 1987, while Western European private holdings of American liquid assets in the United States, which had climbed to $171 billion, slipped to $169 billion. …