`Mr. Yen' Strikes Again

Japan's economic bounce has much to do with the hasty retreat of the yen. Since last April, the Japanese currency has fallen from its 1995 high of 80 to the dollar to around 106. A good deal of the credit goes to the Ministry of Finance's Eisuke Sakakibara, deputy director general of its international finance bureau. Currency traders are calling him "Mr. Yen," for his campaign to increase Japan's capital flows overseas--a trend that undercuts the yen's strength.

On Feb. 8, Mr. Yen unveiled some new tricks. He is cutting red tape on many foreign exchange deals and making it easier for offshore subsidiaries of Japanese banks to lend to foreign companies. Last August, he ended a ban on life insurance companies' making loans in foreign currencies.

In a move that could help keep the yen lower over the long term, Sakakibara will allow foreign pension fund managers nearly unlimited ability to manage Japan's $360 billion worth of company pension assets by March, 1999. The bulk of the management business has gone to Japanese trust banks, which have steered most pension money into low-yielding, but safe, Japanese government bonds as dictated by the MOF. In three years, more of that money may be invested in overseas markets; that would keep downward pressure on the yen. The changes are also coming at a time when Japanese investors are eager to borrow cheap at home, on interest rates near zero, to invest in high-yield foreign bonds and stocks.

The irony is that the MOF's triumph on the yen comes at a time when it's under broad attack for its handling of the banking mess. Nevertheless, says Deutsche Morgan Grenfell Chief Economist Edward E. Yardeni, a yen-dollar rate as high as 150 could be on the way. Not great news for Japan's competitors. But it certainly would mean an even stronger economic comeback in Japan.

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