Markets Cool Toward Japanese Economic Plan Analysts Dismiss Program As Vague, Insufficient

Japan’s plan to dampen the yen’s soaring value against the dollar and keep the country’s economic recovery alive failed to convince the financial markets Friday.

Although the Cabinet’s package included a sharp cut in a basic lending rate, analysts largely dismissed it as vague and insufficient. Traders felt the yen could resume its damaging advance.

“It was a big yawn,” said Don Kimball, senior economist with Mitsubishi Bank. “The policies announced today are sorely inadequate to bring Japan back to a solid recovery path.”

The dollar rose slightly following the 0.75 point cut in the official discount rate to 1 percent, but traders said the cut had a limited effect since they had known it was coming.

The discount rate is the central bank’s main lending rate to banks. Lower interest rates tend to make investments in a currency less attractive.

U.S. Treasury Secretary Robert Rubin, en route to Bali, said in a statement that the Clinton administration felt the cut was “a constructive step in light of economic conditions and financial market developments.”

The dollar traded at 83.58 yen by late afternoon in Tokyo, up 0.36 yen from late Thursday. In late trading Friday in Europe, the dollar was quoted at 83.30 yen. There was little trading in New York on Good Friday.

The economic plan is intended to stem the meteoric rise of the yen, which has gained more than 15 percent against the dollar since January, threatening to derail a fragile economic recovery.

It is also intended to trim Japan’s $121 billion trade surplus, widely seen as one of the underlying factors causing the yen’s rise.

A high yen squeezes the profits of exporters and forces them to raise prices on their products, making them less competitive. Companies like Toyota and Sony say they lose millions of dollars each time the dollar falls one yen.

The economic package calls, vaguely, for steps to increase imports. It pledges to move up the timing of a supplementary budget to boost consumer demand and help reconstruct earthquake-ravaged Kobe.

The plan would also speed up implementation of a deregulation plan to three years, instead of five. That impressed no one, since the original plan, announced last month, was seen as weak.

In addition, the plan provides for a speed-up of other public works spending and steps to support smaller businesses hurt by the high yen.

Several bolder proposals were cut from the announced plan, such as setting a goal of reducing Japan’s trade surplus by half over the next five years, and cutting the tax on securities transactions.

The government did decide to issue more bonds - essentially borrowing money that would then be injected into the economy - a move long opposed by the Finance Ministry. Trade Minister Ryutaro Hashimoto cited this as a firm move to reduce the trade surplus. More money available to consumers and business could stimulate purchases of imports.

Washington so far has been unimpressed with Japan’s efforts to open its markets to foreign goods in key areas like cars, which make up 60 percent of the $66 billion annual U.S.-Japan trade imbalance.

U.S. officials have begun drawing up a target list of more than $1 billion in Japanese imports that could be subject to punitive tariffs if the auto issue is not resolved in bilateral talks now under way.

Japanese officials downplayed the threat of such tariffs Friday.

“I don’t think punitive tariffs are imminent,” said Norihiro Kono, an auto trade official in Japan’s trade ministry. “We will continue to do our best, as we have all along, to see to it that the talks go smoothly.”