European Stars and Stripes (Newspaper) - April 2, 1990, Darmstadt, Hesse                                A currency dealers juggle phones taking orders at a Tokyo foreign Exchange Market. The government says publicly there is no sound reason for the yen a continued poor showing against the Dollar and other foreign Money. Privately it acknowledges that Market forces Are proving stronger than their  of the sinking yen?7 by James Sterngold new York times by engineering Japan s economic recovery after the War steering the shaken Economy deftly through the Oil crises of the 1970s and then stabilizing the nations financial markets quickly after the . Stock Market collapsed in october 1987, Japan a economic policy makers won a reputation for unparalleled management ability. Hard earned Over 40 years that International reputation has been a source of immense Confidence in Japan even arrogance. But in the last three months the reputation has begun to unravel. For the first time Market forces Are looming larger than the Powers of government bureaucrats. Persistent turmoil has wracked Tokyo financial markets this year sending Stock prices Down by More than 20 percent the yen Down More than 5 percent and interest rates up sharply despite numerous government attempts to restore order. As a result Japan s elite bureaucrats Are watching their credibility erode almost daily. Central Bank intervention has failed to prevent the Dollar from surging 1.33 yen against the japanese currency to its highest Levels in More than three years. Much of this loss of control stems from measures taken by the bureaucrats themselves. In recent years under heavy pressure from the United states the government initiated a process of financial liberalization that made Japan s huge capital markets More open to the world. The markets became vastly larger and More powerful less subject to bureaucratic control a and far More volatile. Quot it is not As easy to control the Market As we would like to Quot a senior finance ministry official acknowledged. Quot but that is a development that we created. If you want to have the benefits of allowing Market forces in you cannot have As much control As there was  the liberalization of the financial markets included allowing interest rates to float at Market determined Levels making it easier for japanese corporations to raise capital abroad permitting trading in interest rate and Stock Index futures and providing foreign institutions with increased Access. As a result the government faces not just a technical problem of what Steps it can take to stabilize Stock prices and bolster the battered yen but How it can rebuild Confidence that the system can run efficiently. The first signs that something fundamental had changed came last fall when the yen started to weaken against the Dollar and defied every attempt by the government to bolster the currency. A Surprise increase in the Bank of Japan s official discount rate in october not Only proved ineffectual but was also followed by an unseemly Public Row Between the Central Bank and the finance ministry Over whether another increase was necessary. There is no simple explanation for the slide in the yen s value. But foreign Exchange experts and economists said that the yen a fall was not due to speculation but rather the belief of japanese institutions that they can earn returns on investments abroad. In investing overseas these companies Are in effect Selling yen to buy dollars or Marks of another currency pushing Down the yen s value. Starting Early this year the yen lost even More ground against the Dollar. Yasushi Mieno the Central Bank governor declared that the decline was a speculative trend that would soon reverse. But it did not. The slide of the yen came even As the japanese Economy was in sound shape growth was unimpeded for nearly four years corporate investment in research and Plant and equipment was running at three times the level of the United states on a per capita basis inflation though rising was less than 3 percent. Despite these positive factors interest rates were rocketing upward threatening the Economy the yen was still falling threatening to increase inflation and Stock Market investors were going from nervousness to panic. Both the finance ministry and Bank of Japan publicly continued to say there was no sound reason for the problems. In private officials expressed confusion and exasperation with the Way the markets failed to respond to their prodding. Perhaps the worst news came when the Bank of Japan again lifted its discount rate March 22. It was a move that was expected to attract capital Back to Japan and strengthen the yen. Instead the Stock Market had its scariest and most volatile Day and the yen remained just As weak. The loss of Confidence this spectacle has f engendered has been almost palpable. Until recently for instance the attitude of Many japanese toward american demands that Japan open its markets further was Best summed up by the Book entitled the Japan that can say no. Suddenly a very different attitude is being expressed. Shin Kanemaru one of the most powerful politicians in the ruling Liberal democratic party was quoted As telling his party Quot Japan depends on the United states not the other Way around. We owe the United states for the Well being we now  Richard Koo a senior economist at Nomura research Institute said Quot this has been a particularly difficult time. People Are seriously questioning the ability of japanese government officials to keep the markets on  the loss of Confidence in the bureaucrats has even started turning into disdain. It is dawning on Many japanese that Japan has become a capital Rich labor poor country whose vast wealth is dedicated to making japanese corporations competitive rather than improving the Standard of living. The huge flow of japanese capital into the United states and other countries which was viewed As an Emblem of Success until recently is now being regarded in some quarters with resentment. If used at Home that capital could be improving the lives of the japanese. But there Are not enough opportunities to invest profitably in Japan forcing the outflow. Quot the fundamental problem is a Lack of investment opportunities Here Quot Koo said. Quot japanese realize that they Are shipping All their capital overseas and investing in improving living standards outside Japan while their own living standards Are much worse. Investments in Japan Are made difficult he said by government restrictions and distortions caused by the regulators. Michiya Matsukawa a senior adviser to Nikko securities co. And a former top official at the finance ministry asserted Quot the Point is japanese Are frustrated by the fact that there Are better investment opportunities outside  Page 16 a a a the stars and stripes monday april 2, 1990