June 17 is a day that Nick Wooton, a dollar-yen trader at J.P. Morgan & Co. in London, will remember for a long time. Trading was moving along normally until about 12:45 p.m., when the bottom suddenly dropped out of the market. His trading screens showed the dollar plunging from 142 yen to 140 in 50 seconds. Most moves are only a couple of tenths of a yen. When the markets realized the U.S. had sold dollars to shore up the flagging yen, the dollar dropped another three yen, or "big figures" in trader talk. "We are surviving, but just barely," said Wooton, exhausted after a frenetic day.
Wooton's colleagues at Morgan had been bearish on the Japanese currency for months--a stance that served their clients well until the U.S. intervened. The move was meant to teach Morgan and other bears a lesson and brake the yen's precipitous decline. The yen has become a proxy for all of Asia's problems and the focus of foreign exchange traders' attention. The yen had plummeted 15.8% against the dollar since Feb. 10, threatening a meltdown of other Asian currencies. Thorkild Juncker, Morgan's global currency head, thinks it was this dangerous link that prompted the Clinton Administration to strike so hard. "Carpet bombing comes to mind," he says.
Juncker's troops on Morgan's vast trading floor are currency-war veterans. With its banks of screens, a trading desk isn't unlike the cockpit of a plane. At the heart of Morgan's business is Wooton, a spiky-haired 26-year-old. On his left, like a co-pilot, 28-year-old Patrick Slough specializes in the fast-growing Deutschemark-yen business.
The dealing is fast but controlled. Orders come in from people on the floor, such as Yukiko Hashimoto, a Morgan vice-president who stays in touch with worried Japanese bankers and investors in Tokyo. The traders talk in code for simplicity and to protect clients. "Buy $100 for piano at 12," means a big Japanese customer wants to sell $100 million worth of yen for dollars at 138.12.
Usually, Wooton can move big trades almost instantly through his Reuters Dealing 2000 automated trading system. Beeps announce that someone at another bank wants a quote. Wooton quickly types in prices. A stroke of the buy or sell key closes the deal. But Wooton says that for about two hours after the U.S. intervention it was almost impossible to trade. Hundreds of millions of dollars of orders piled up. The market finally stabilized at about 138 yen to the dollar, and he was able to work off the backlog. Many orders came from banks and money managers in Japan, who saw the Fed's move as a chance to sell more yen. "Through it all, our Japanese customers continued to buy [dollars]," says Juncker, "while Anglo-Saxon investors were selling."
DARWINIAN. That behavior is the main reason why Morgan's traders and analysts are skeptical the intervention will work--even though they expect more such moves. The major force depressing the yen, they say, is the massive outflow of money from individual Japanese, who are dying to get out of their low-yielding yen savings accounts. They're getting lots of help from U.S. financial institutions that have set up shop to take advantage of Japan's Big Bang market opening. Says Juncker: "As soon as they give their money to us or Morgan Stanley or Fidelity, it is invested abroad."
As long as Japan seems risky and its interest rates are close to zero, the outflow will continue, they argue. At a morning currency meeting on June 16, Jesper Koll, J.P. Morgan's visiting Tokyo economist, said he expected the outflow to triple in the next 12 months, to about 21 trillion, or $150 billion. The intervention, adds Avinash Persaud, the bank's currency strategist, does nothing to change his forecast of the yen ultimately hitting 155 to the dollar.
The trading floor is a window onto a Darwinian world. The markets pass judgment on countries and regions by pummeling their currencies. Even hardened traders have found themselves a little awed by the last few month's actions--and occasionally humbled as well.