HOW JAPAN COULD TAME THE YEN
The super-yen has Japanese industry reeling, and there are widespread fears that Japan may soon slide back into recession as manufacturers who are being priced out of export markets cut production. Lower interest rates and easier money would help. Yet Japanese rates are so low--the central bank rate is now 1%--that it sometimes seems as though they have nowhere lower to go.
Actually, that's not quite true.
The Swiss battled a surging Swiss franc in 1978 by pushing short interest rates down to 0% and imposing a surcharge on foreign investment flows, observe Nancy R. Lazar and Edward S. Hyman of ISI Group. The surcharge made the effective rate negative for foreigners. The Swiss also cranked up money growth. The money supply is being expanded in Japan, say Lazar and Hyman, but the pace of growth remains relatively slow. Interest rates, meanwhile, are "still 1%."BY KAREN PENNAR