Dollar jumps on hint of yen action

THE DOLLAR jumped more than a yen against the Japanese currency yesterday after Kiichi Miyazawa, Japan's finance minister, raised the spectre of joint intervention with the US to prevent the yen strengthening too much on the foreign exchanges. Any joint action would be the first in more than a year.

A statement said Mr Miyazawa and Lawrence Summers, the US Treasury Secretary, had spoken on the phone, and "exchanged opinions on the Japanese and US economies, including recent movements in the foreign exchange market". Mr Miyazawa said the yen's three-week climb from 122 to 114 to the dollar had gone too far too fast.

"Given the rapid movement in foreign exchange over the last 20 days, I don't think concerted intervention by the US and Japan would be difficult," he said. "We have reached the stage where communication with the US has become necessary."

The US Treasury declined to comment but said in its statement that Mr Miyazawa and Mr Summers would "keep in close touch with each other on these matters".

Although analysts believed US co-operation was unlikely at this stage, the dollar climbed by well over a yen to as high as 115.66 before falling back slightly. It had dropped below 114 earlier this week.

"Talk of joint intervention cannot be dismissed as complete rubbish. We are in a danger zone," said Stephen Hannah, an economist at IBJ in London. "There is no way the Japanese economy can sustain any further strengthening in the exchange rate. The US could be persuaded to take action," he added.

One reason the markets took Mr Miyazawa's comments so seriously yesterday was that too sharp or disorderly a fall in the dollar could pose a threat to Wall Street. Mr Summers, like his predecessor Robert Rubin, has always proclaimed a strong dollar policy.

Japan has sold upwards of $30bn-worth of yen during the past two months to try to cap its rise. But the US authorities generally have little appetite for direct intervention. However, there are recent precedents for co- ordinated action.

The G7 acted to halt a long-term dollar slide against the yen in Spring 1995, when it had dropped below 83, and the US and Japan intervened to buy yen last June to prevent the dollar from rising further when it had passed 147.