Word: yens
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...banks last week raised the prime rate that they charge corporate customers from 12.5% to 13%. That helped boost the dollar to record highs against the British pound and the Canadian dollar. The U.S. currency also hit a peak for the year vs. the Japanese yen, and a seven-year high against the Swiss franc. Many economists expect further hikes in interest rates and a continued strong dollar...
...strong dollar has helped Komatsu, Caterpillar's powerful | Japanese competitor, to gain ground. Because of lower labor costs and a cheap yen, Komatsu is selling similar machinery for up to 30% less than Caterpillar in places such as Latin America and Africa...
Although the precise terms of the agreement have not been made public, Japan is believed to have freed the yen to make it more available for trading on international currency markets. Tokyo will also reduce restrictions on the outflow of the yen and improve the access of foreign banks to the Japanese money market. That means other nations can reduce some of their dollar holdings and start acquiring yen deposits, which should drive up the currency's price in the process...
...addition to liberalizing regulations affecting the yen, Japan seems more willing to open up to foreign companies. Since 1945 U.S. corporations have been able to invest only $2 billion in Japan, while the Japanese have invested about $14 billion in the U.S. Easing restrictions will make it simpler for U.S. businessmen to operate in Japan, as well as allow foreign firms to tap Japan's relatively cheap capital markets. Officials on both sides hope that President Reagan and Prime Minister Nakasone will be able to sign a yen agreement in London at the June economic summit...
Even if the accord is completed as anticipated, there is some doubt whether the measures will achieve their desired purpose. Treasury officials concede that internationalizing the yen could have the short-term effect of further weakening it. Moreover, despite earlier attempts to increase U.S. exports to Japan or slow down Japanese imports, Tokyo's trade surplus still grows. Said American Motors Chairman Paul Tippett last week: "The negotiations are encouraging, but I've learned to be cautious when expecting progress from the Japanese." -By Alexander L. Taylor III. Reported by Christopher Redman/Washington and Edwin M. Reingold/Tokyo