Japan seeks to curb dependence on dollar

Japan seeks to curb dependence on dollar

SEATTLE, Washington (AFP): Japan is seeking to reduce its dependency on the U.S. dollar to ensure fluctuating exchange rates no longer undermine its trading position, a top Japanese banker said Tuesday.

"To bring the situation somewhat closer to major European countries is a desirable and plausible medium and long term policy goal," Toyoo Gyohten, chairman of the Bank of Tokyo, said in an interview to AFP.

"My personal view is that one of the major reasons why Japan has to be so nervous about this dollar/yen rate is due to the fact that the Japanese economy in trade, financing, investment, etc. is still very much dominated by the dollar," he said.

Gyohten said less than 40 percent of all Japanese exports were quoted in yen as were less than 15 percent of all imports, a situation he compared to Germany, whose trade is conducted only in the national currency.

The Bank of Tokyo chairman, who was attending the annual meeting of the International Monetary Conference here, has been asked by the Japanese government to hold talks in world capitals on currency exchange rate instability.

The strength of the yen against the dollar has concerned the Japanese government as it has raised the price of their goods on the world market and reduced Japan's trade competitiveness.

Gyohten warned that in the short term, Tokyo did not want to convert its large U.S. dollar reserve, totaling US$154 billion, into other currencies as this would drive the dollar further down.

"That would mean additional sales of the dollar in the market and increased upward pressure on the yen and the (German) mark," he said.

Yoh Kurasawa, chairman of the Industrial Bank of Japan, warned the United States against allowing a continued fall of the dollar, stating that this would prompt central banks to abandon the dollar as the world's reserve currency.

Kurosawa recalled that the sterling plunged into crisis in the early 1960s when central banks shifted their reserve currency from the pound to the U.S. dollar because of Britain's debt problem.

Lessons

"We earnestly hope that the United States will draw lessons from history," he said.

Japan has charged the Federal Reserve is not doing enough to help prop up the dollar on the world markets and suggested that the policy was a deliberate attempt by U.S. monetary policy makers to undermine Tokyo's trading position.

The United States has been locked in a bitter trade dispute with Japan over cars and car parts and has argued that currency rate discrepancies were due to Tokyo's closed trade policies.

Kurosawa noted that the dollar was losing ground in many countries' reserve funds, noting that about 60 percent of the foreign-exchange reserves held in central banks around the world, totaling $1.2 trillion, were held in U.S. currency.

"If the current trend continues, it probably will not take another decade before the share of the U.S. dollar falls below 50 percent," Kurosawa said, adding "in fact, there is a risk that this could occur in a very short period. "

He called on Japan to take measures to make it easier for central banks of other countries to hold yen funds, adding that 40 percent of the foreign exchange reserves were currently held by Asian countries.

Kurosawa said many Asian countries were looking at dumping the weak dollar, either because it was fueling inflation as in Hong Kong or because a large part of their debt was in yen such as China, Indonesia and Malaysia.