The United States, which has longsought Japanese action to stimulate its economy, appears to be
satisfied Tokyo's latest package is a major development and
allows leading industrial nations to reaffirm their agreement
to stabilize currencies.
    Monetary sources said they believed that U.S. Treasury
Secretary James Baker considered Tokyo's package, announced
yesterday, to be a major stimulation of the Japanese economy.
    But yesterday's statement by seven leading industrial
powers endorses the yen's rise from around 153 to the dollar,
the level at the February 22 Paris Accord, to about 145 today.
    The supplementary budget worth about 34.48 billion dlrs was
announced by the ruling Liberal Democratic Party on the eve of
Miyazawa's departure for Washington, to attend yesterday's
meetings of leading industrial nations.
    In a strongly worded statement terming the Japanese action
"extraordinary and urgent", the meeting reaffirmed the Paris
Accord by noting that current exchange rates are within ranges
broadly consistent with fundamentals, or economic reality.
    The Group of Seven -- the United States, Japan, West
Germany, France, Britain, Italy and Canada -- therefore
repeated their willingness to continue close cooperation to
foster exchange rate stability.
    The cooperation agreement has resulted in concerted central
bank intervention of 8 billion to 9 billion dlrs to halt the
dollar's fall. While relatively unsuccessful, the scale of
intervention between so many nations is unprecedented in recent
years.
    Monetary sources also said they understood that Secretary
Baker considered the meeting to be extremely successful in the
light of the Japanese announcement.
    They also said there was a growing feeling among the
finance ministers and central bankers that cooperation over
medium-term policies has replaced the bickering over short-term
differences in past meetings.
    West Germany, whose currency has not risen anything like
the yen since the Paris Agreement, appears from the face of
yesterday's statement to have won acceptance from other
countries that its exchange rate is acceptable.
    Bonn's finance minister Gerhard Stoltenberg argues that
major currency shifts needed to remedy the huge imbalance
between West Germany and Japan's trade surpluses and America's
trade deficit have already taken place.
    No mention was made, however, of the U.S. commitment to cut
the budget deficit even though it is implied in the
reafffirmation of Paris.
    European nations and Japan believe deficit cuts are
essential to curbing the record U.S. trade shortfall that
reached nearly 170 billion dlrs last year.
    A similar argument was made on Capitol Hill earlier this
week by Federal Reserve Board chairman Paul Volcker. A further
sharp fall to redress trade imbalances would "clearly pose
substantial risks of renewed inflationary momentum and could
undermine confidence in future financial stability," he said.
    Volcker warned a further dollar fall might force the
politically independent Fed to drive up interest rates.
    Monetary sources said that, privately, West Germany
welcomed the rise in the yen against the dollar while its own
currency remained relatively stable against the U.S. unit.
    Bonn and other European nations worry that once the weak
dollar blunts Tokyo's export drive to the United States, the
Japanese monolith will concentrate on European markets.
    The ministers, meanwhile, also continued talks on making
their policy coordination more binding and one, Canadian
Finance Minister Michael Wilson, said good progress was made.
    Wilson said they will meet before the June Economic Summit
to prepare a report for the leaders of the seven nations.
    The United States and France, backed by the International
Monetary Fund, want the seven to agree on ranges or "norms" for a
limited number of economic objectives such as growth,
inflation, monetary conditions, trade balances and current
account balances.
    Sharp deviations from these guidelines would result in
consultations between the countries on whether corrective
action should be required.
    But the inclusion of currencies as one of the objectives
has Bonn and London worried, monetary sources say, because it
implies Washington is moving in the direction of target zones.
    The sources said the Reagan administration unsuccessfully
sounded out its allies on a system of target zones to limit
currency fluctuations just before the February meeting.
    The concept is a much more rigid one than the secret ranges
of the Paris Accord and would mark a sharp departure from the
relatively free currency markets of recent years.
 Reuter
