BANK OF JAPAN MULLS OTHER OPTIONS TO STOP YEN RISE
Today's liberalised financial markets are
making it extremely difficult for Japan's monetary authorities
to prevent the yen's rise against the dollar, but they have
several options other than normal intervention, Bank of Japan
sources said.
    A senior central bank official said that such methods as
controlling foreign exchange deals and invoking currency swap
agreements with other central banks, which have not been
invoked since 1978, are all being considered.
    "But the time may not be ripe," he said.
    "In this era of financial liberalisation, it's almost
impossible to control the flow of capital in and out of Japan,"
said another senior bank official.
    But the first official said: "From a technical viewpoint,
the Bank of Japan could activate swap agreements immediately
after other central banks involved agreed to do so."
    A swap agreement, an exchange of currency between two
nations, allows both sides to acquire a ready source of the
other's currency in case of need.
    "If the Bank invokes such swaps, both parties would announce
the decision jointly," said the first official.
    The sources said they believed the limit of currency market
intervention may be being reached after they saw recent
concerted market action by central banks of major industrial
nations was increasingly ineffective in propping up the
battered dollar.
    But intervention is at least an option, they said. Further
easing of monetary policy will be very difficult with an
official discount rate already at a record low of 2.5 pct, they
said.
    Bank of Japan Governor Satoshi Sumita has repeatedly ruled
out another rate cut due to fears it could revive inflation.
    One bank official said he could not deny the possibilty of
the Bank of Japan activating currency swap agreements with the
U.S. And other central banks, if these banks continue
intervening to sell the yen in support of the dollar and run
out of their yen cash positions.
    "But we don't think they have become short of yen quite yet,"
he said.
    The bank has established a five billion dlr swap limit with
the U.S. Federal Reserve and another 2.5 billion mark and 200
billion yen limit with the West German and Swiss central banks,
according to the sources.
    Foreign exchange dealers estimate the Fed had sold two
billion dlrs worth of yen from its own account to support the
dollar in New York last week.
    The central bank sources also said Japan may arrange other
currency swap agreements with Britain and France if they find
it necessary, but added they are not actually talking with each
other towards that end.
 REUTER
