IP: Re: Clinton Administration "Reverse Course"

[David Farber <farber () central cis upenn edu>]

Date: Sun, 17 Sep 1995 17:33:33 +0900
From: sja () glocom ac jp (Stephen J. Anderson)


This past week I met a US Embassy staff person and asked questions about
the visits to Tokyo that sent the yen plummeting.  I got little, but did
write down the words that the Administration was "consolidating" its trade
agreements, which I interpreted as a confirmation of the continuing
"reverse course."  I also came back to the office trying to reconstruct the
motives of the U.S. Treasury people.


I then opened the file I save on finance and bond markets.  I found an WSJ
article from 22 April 1988  entitled "Task Force's (Nicholas) Brady Says
Japanese Sales of U.S. Bonds Touched Off Oct. 19 Crash" (read, 'Black
Monday, 1987).   With similar fears in mind, the Clinton reelection
campaign has now set its course for November 1996.  That course needs an
American. economy with stable long-term interest rates depending on bond
purchases by foreign investors, and these investors still include a
significant percentage of Japanese insurance companies and assorted banks.


My question is about the Treasury Department position, or the fears and
motivations of Robert Rubin, Jeff Garten, Joan Spero, and the interest rate
watchers.  Their rush to act seems related to the formative (1987?)
experiences of the Wall Street faction in the Administration.  There may
even be a compelling reason (or threat), in terms of Clinton's reelection,
for seeing this role of the Japanese investors as a crucial linkage.  The
bond market, and Japanese purchases, were mentioned not only by Jim Mann of
the LA Times (reprinted in Japan Times), but also in a front page article
in the Nikkei last Sunday.


In fact, I would rather see DFS comments and debate about the percent of
Japanese purchases of Treasury offerings, and the types of deals made this
summer about Japanese finance cooperation (if any) rather than an ersatz
debate about the banking industry here.  I recall a long conversation with
a Export-Import Bank official in January about the need to "rationalize"
the finance industry in Japan.   The big banks do not worry about a
crisis--they see it as an opportunity to swallow up the small, inefficient
local institutions.  The overpublicized run on a local Tokyo credit union
was almost staged by the Ministry of Finance in order to put pressure on
Governor Aoshima, as well as the bigger banks, to lend more money for a
bailout.  From my seat, it looked like Kabuki to me.


A key question that arises is whether there was a quid pro quo.  Japanese
purchases of US Treasury bonds back in 1987 was somewhere near forty
percent of the offerings.  Can some finance analyst on DFS tell me, or
check now, about where the current amount stands?  Better yet (in hopes of
finding the smoking gun), have there been any changes lately?


Steve Anderson
Center for Global Communications
International University of Japan
Tokyo