Weak Dollar Puzzles the Japanese

TO the consternation of central bankers and the growing alarm of Japanese exporters, the dollar seems to be settling in at a value of less than 100 yen.

The dollar closed in Tokyo yesterday at 99.93 yen, the first time it has finished under 100 yen since the modern exchange-rate system was established after World War II. The greenback is also falling in value relative to European currencies.

Many analysts have said in recent days that the United States central bank, the Federal Reserve, should raise interest rates to make the US currency more attractive to international investors. The Fed, however, has already raised rates four times since February and seems reluctant to do so again for fear it will stifle the US economic recovery.

US officials say they are concerned about the dollar's decline, but insist the underlying ``fundamentals'' of the US economy are strong. Investors, evidently, aren't so sure. ``The markets are worried about global inflation, particularly in the US,'' says Shigeki Sasaki, an economist with Nomura Research Institute in London.

Massive dollar-buying by central banks of 17 nations late last week and by the Bank of Japan in Tokyo yesterday failed to shore up the US currency. The ineffectuality of the intervention has many people puzzled. Normally, the marshaled forces of the world's most powerful financial institutions are enough to boost the value of the dollar.

But analysts say the US currency's weakness is due to a constellation of economic factors that are not susceptible to a quick fix. For one thing, the US continues to purchase billions of dollars more in goods and services from abroad than foreigners sell in the US, flooding the currency markets with dollars. Last year, the US current account deficit, the measure of this discrepancy, was $148 billion.

Until recently, however, international investors have bought up those extra dollars to purchase US bonds and securities in large amounts. But these investors are losing their interest. Prices on the US bond market have been weakening in recent months, and there is growing skepticism about the future of the US recovery.

The situation is worrisome to economic planners the world over, but the anxiety is particularly acute in Japan.

The Japanese political crisis and the sagging dollar are driving down the Japanese stock market. The Nikkei index of 225 key stocks dropped 465.79 points yesterday, a loss of 2.24 percent, closing at 20,300.96. It lost 273.46 points on Friday.

Shoichiro Toyoda, the chairman of Japan's powerful Federation of Economic Organizations, called again yesterday for concerted action to strengthen the dollar. Mr. Toyoda, who is also the chairman of the Toyota Motor Corporation, represents producers and exporters whose profits shrink when the yen gains strength. Indeed, some Japanese manufacturers say the high yen has already eliminated the possibility of profit.

The currency crunch comes at an especially delicate time for the Japanese economy, which is just beginning to nose its way out of a three-year recession.

BUT here, too, there is growing recognition that the weak dollar/strong yen scenario is a reflection of structural problems. While many analysts call for a monetary adjustment on the US side -

the raising of interest rates - they suggest that long-term, complex measures like deregulation and market-opening are needed to ease tension on the Japanese side of the equation.

Ironically, the high yen may be forcing new realizations on the Japanese that will encourage them to press for such changes. Edward Lincoln, who advises US Ambassador Walter Mondale on economic issues, says the high yen makes the Japanese recognize how much more efficient their export industries are in comparison with producers who do not compete abroad.

Prices for products like cars and beer have been dropping, in part because of pressure from imported goods that get cheaper as the yen strengthens, while nontradable goods like haircuts have stayed at high levels. A trip to the barber, for instance, costs 3,700 yen ($37.02). ``This kind of stuff,'' Mr. Lincoln says, ``is becoming more noticeable.''

He echoes the hope of US policymakers when he speculates that this realization may increase pressure for deregulation.

But Japanese leaders are in no position to concentrate now on a package of market-opening measures promised for the end of June. They are busy trying to choose a prime minister for the second time in three months.