Save Yen, Save World

The hurtling Japanese yen wasn't exactly an asteroid heading to shake Earth. But its decline before Wednesday's dramatic rescue was scarier than most people thought.

Currency devaluations and declines since the beginning of the Asian crisis have vaporized some $1.5 trillion in the wealth of East Asians - hurting both poor and rich in the rapid decline. Any further drop caused by contagious fear unrelated to the real economies of the region would have been a kind of financial asteroid shaking the US and the world.

So the first step in rescuing the yen was more than welcome - worldwide.

Now for a second step.

The US and Japan jointly took the first step - nudged vigorously by China. It's up to Tokyo to take the next steps by itself.

Just as the US belatedly but dramatically supported the yen, so did Japan's Prime Minister Hashimoto even more belatedly say the right words. He said Japan would "expeditiously" overhaul individual and corporate income taxes and restructure its financial system - including "prompt disposal of bad assets." That means the billions in bad loans carried on the books of Japanese banks.

So step 2 should be "Watch what I do, not just what I say." Japanese officials have worried world leaders before by hinting at major reforms but then taking only the politically easier step of launching major public works stimulus packages. This time should be different. Mr. Hashimoto has at last uttered specific promises. And US Treasury Secretary Robert Rubin, who engineered this week's big rise in the yen, has dispatched his able deputy, Lawrence Summers, to Tokyo to provide help/pressure. The US, after all, has learned from its own bad bank-loan and overbuilding crises, and its long boom after tax cuts.

Is this just a matter of imposing Reagan/Thatcherism on Japan?

No. Japanese citizens clearly need a tax cut to stimulate their economy. That will increase confidence in the yen - and investment in Japan as so many save for retirement. Japanese income tax rates are sharply higher than those of neighbor nations.

Earlier we mentioned China's vigorous nudge that helped save the yen. Had China not loudly hinted that it might have to devalue its currency if the yen continued to plummet, Messrs. Rubin and Clinton might not so soon have reversed their policy of not intervening in the currency market. But, with Mr. Clinton about to leave for China, he hardly wanted to arrive as the harbinger of a nose dive in the value of cash in everyone's pocket, mattress, and bank account.

Other concerns also loomed. An economically wounded China would have even more trouble finding jobs for millions being mustered out of state enterprises and the Army. And it might have been tempted to export more weapons for hard cash.

The bottom line: the US has voted for growth in Asia to help growth everywhere. Japan has promised to do the same. Now it's time to act.