Rush To The Exits

Talk about a bargain! In the 1980s, the Wall Street tower known as Financial Square cost more than $400 million to build. Last week the elegant skyscraper overlooking New York Harbor changed hands for a third that much. The seller: Japan's Sanwa Bank. The consequence: $128 million headed back to Japan, giving one more bump up to the Japanese yen and another downward tug to the dollar.

As drama, the dollar's two-month plunge against the yen can't beat OJ. But while America shrugs, the sharp currency moves are causing panic in financial markets abroad. The anxiety resounded through Washington last week, as officials from seven leading countries held an unusually acrimonious exchange-rate parley. By the modest standards of the G-7, it was a success; this G-7 meeting, unlike others, at least agreed on a press release. But the proclamation that an "orderly reversal" of the dollar's decline is "desirable" rang hollow in the currency markets. The finance ministers and central bankers were in conspicuous disaccord about whether they should even try to jack up the dollar.

Better to do nothing than to do something dumb--and that's the likely alternative. In Japan and Europe, it's good politics to lecture Washington that a stable dollar requires higher U.S. interest rates and a lower federal budget deficit. By international standards, however, U.S. economic policy actually looks sound. The major cause of exchange-rate turmoil lies in Tokyo. Privately, even Japanese officials admit that they face a yen problem, not a dollar problem, as the Japanese bring money home because so many of their investments in the United States have proved disastrous. Compounding matters, the Bank of Japan's tight-money policies are keeping it at home. Japan faces not inflation but deflation; some economists forecast a 3 percent consumer-price drop in 1995. When yen will buy more tomorrow than they do today, holding yen makes sense. The higher U.S. interest rates that Japanese and European officials demanded at the G-7 meeting wouldn't change that equation, Says Alexander Kinmont of Morgan Stanley's Tokyo office, "Even if Treasuries were yielding 20 percent, there would be no buyers." With the markets so firmly against them, the diplomats can't do much but sputter.