US props up Japanese yen, to pump $ 2 b to boost value

By late afternoon, the Dow Jones industrial average surged 163 points to 8,828. The dollar’s skid quickly stung the bond market, pushing the yield on the benchmark30-year bond up to 5.74 per cent as its price slid 1-13/32 of a point. Many investors feared that Japan might sell US bonds to replenish its dollar reserves after Wednesday’s intervention.

The Japanese currency had fallen to its lowest level in eight years recently on fears that the ailing Japanese economy would spark another round of Asian financial shocks.

Treasury secretary Robert Rubin said Washington stood ready to continue supporting the yen if needed. However, he said Wednesday’s action did not mark a change in US dollar policy.

"The answer to that is no," Rubin said in response to a question at a White House briefing. "I think the strong dollar policy has served us exceedingly well over the past several years and still does."

"The actions that were taken and announced both in Japan and the United States today were very much animated by concern for Asia, but has nothing to do with our more general policy with respect to the dollar," he said.

Traders said the intervention appeared limited toUS and Japanese authorities, without a hand from other big industrialised countries. Britain said the action was a US-Japanese initiative and wished it every success. "This is a clear shift in US policy and it probably indicates that the US has received some concessions from Japan," said a senior economist at Barclays Capital in New York.

President Bill Clinton said the action was taken to show Washington supported Japan as it takes steps to revive its economy. Clinton said he had spoken with Japanese prime minister Ryutaro Hashimoto shortly before midnight on Tuesday to express US support for Tokyo.

Japan’s economy, the second largest in the world, has tumbled into recession this year, shrinking at an annual rate of 5.3 per cent in the first quarter of 1998.