Originally created 07/31/98

Fed sold dollars to prop up Japanese yen

NEW YORK -- In its first sale of dollars in global currency markets since 1992, the United States spent a total of $833 million last month to prop up the faltering Japanese yen.

The Federal Reserve Bank of New York on Thursday provided the first details of the June 17 foray into the foreign exchange markets, which the United States carried out with Japan to halt a freefall in the yen.

Treasury Secretary Robert Rubin had announced the coordinated intervention at the time, but gave no details of the extent of the operation. Currency traders had estimated that the United States sold around $2 billion to buy yen and that Japan sold a similar amount.

But in its quarterly report, the Federal Reserve Bank of New York said the sum was $833 million. "It was the amount that seemed effective from our side," said Peter R. Fisher, executive vice president of the New York Fed. He gave no figures for the Japanese sales.

The New York Fed acts as the agent for the Treasury Department and Federal Reserve in executing U.S. foreign-exchange policy in the open market.

The action was taken after the Japanese currency appeared to be in a freefall, tumbling to an eight-year low against the dollar. Traders were pessimistic the Japanese government would take tough measures needed to bolster its economy, even though officials had announced several efforts to do so.

The intervention gave an immediate lift to the yen, driving it up to 136.51 to the dollar at the close of the June 17 trading session. Since then, the yen has slid further, again on pessimism about the nation's economic outlook. It traded at 143.66 to the dollar late Thursday, but that still was below its low for the year of 146.78, reached June 16, a days before the U.S. intervention.

Japan's weak economy has threatened to worsen the Asian financial crisis, which has battered stock and currency markets throughout the region. A strong Japanese economy -- a big buyer of goods and services from its neighbors -- is needed to help pull the region out of its doldrums, U.S. officials say.

The June 17 intervention marked the first time since February 1992 that American monetary authorities had sold dollars to try to influence the markets. At that time, the government sold $150 million for yen over two days.


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