U.S. Deputy Treasury Secretary Lawrence Summers and other emissaries of the Group of Seven industrialized countries are converging on Japan to press the government to make good on a pledge to revive its economy.

U.S. support for the yen came Wednesday after Prime Minister Ryutaro Hashimoto called President Bill Clinton and pledged to clean up Japan's banking system and boost economic growth. Traders estimate the Federal Reserve Bank of New York and the Bank of Japan spent as much as US$6 billion, driving the US$ down to about 136 yen from 144 and sending stock markets throughout Asia soaring.

But the US$ has already resumed its rise against the yen, and U.S. stocks were mixed yesterday as skepticism set in about Japan's commitment to reform. Even in Asia, investors were more heartened by the presence of G7 representatives ahead of tomorrow's meeting than by any confidence Japan would finally tackle its problems, analysts said.

"The stock market feels safer now that the G7 has taken over instead of the Japanese government, because the Ministry of Finance is incompetent and Japanese politicians are incompetent," said Satoshi Shimamoto, an economist at MMS International.

Japan's Nikkei stock average rose 646.16 points, or 4.39% yesterday, to 15,361.54. Hong Kong's Hang Seng index surged 6.39% and South Korea's benchmark index jumped 7.14%. The US$ was quoted late yesterday afternoon at 137.9 yen, up from Wednesday's 135.52, about eight yen less than the eight-year high of 146.14 it reached on Monday.

"A worldwide stock market crash was averted by the currency intervention," said Takeshi Yamaguchi, portfolio manager at Taiyo Investment Trust & Management Co. "But the key issue is whether Japan can meet U.S. demands to carry out structural reforms."

"From what I can see, it's going to take a while longer," for Japan to turn its economy around, said Mark Severovich, a money manager for Waddell & Reed Financial Inc.

"There's got to be a lot of social disruption to get things right again, and that's just not going to happen easily."

Summers will try to head off that skepticism by meeting with Japanese officials today, then joining deputy finance ministers and central bankers from the G7 and 12 Asia-Pacific nations for a weekend session aimed at halting a recession that threatens economies worldwide. In addition to the U.S. and Japan, the G7 consists of Canada, Britain, France, Italy and Germany.

Tomorrow's talks in Tokyo will include officials from the International Monetary Fund, the World Bank and the Asian Development Bank. Officials from Australia, Brunei, China, Indonesia, South Korea, Malaysia, New Zealand, the Philippines, Singapore and Thailand are also expected to attend.

Summers had a two-hour dinner yesterday with Eisuke Sakakibara, Japan's vice-finance minister for international affairs.

Sakakibara later told reporters that he and Summers agreed the joint action in foreign exchange markets had gone well. He said tomorrow's G7 meeting would address other issues apart from Japan's financial problems, including other Asian economies and currencies.

Treasury officials said Summers will deliver the message that, while the Clinton administration is willing to help support the yen, it expects Japan to follow through on promises to speed up efforts to stimulate the economy and overhaul the financial system.

Japan's gross domestic product shrank 1.3% in the first three months of the year from the previous quarter, or 5.3% at an annualized rate.

The economy shrank 0.7% for the year ended March 31, the first full-year decline since oil prices soared after the Arab-Israeli war in 1973.

	This Information System is provided by the University of Toronto Library and the G7 Research Group at the University of Toronto.
	Please send comments to: g8@utoronto.ca Revised: August 17, 1998.

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