Smaller Dollar for a Bigger Yen

Stronger against the mark, but a hard kick in Tokyo

Considering the behavior of currency markets since December, last week had to be counted as one of the dollar's best. After hitting new lows with monotonous regularity, the greenback suddenly rose against the superstrong West German and Swiss currencies, reaching 2.05 deutsche marks and 2.0 Swiss francs, v. lows of 1.98 and 1.75 two weeks ago. The rise accelerated at week's end after President Carter announced that U.S. and German officials have been conferring by telephone about concrete new plans for strengthening the dollar; Carter himself chatted with West German Chancellor Helmut Schmidt for 15 minutes. After weeks of disconcerting sniping between Washington and Bonn, the news of renewed cooperation served notice on money traders that the U.S. and West Germany will probably agree on a joint strategy, presumably involving in the initial stage coordinated buying of dollars to support their price against the DMs. Administration officials are putting together a new dollar-support program that could include borrowings from the International Monetary Fund and the sale of U.S. bonds abroad to raise funds required to buy up unwanted dollars on foreign exchanges.

As it was, the upbeat ending came only after a succession of blows that a few months ago would have made the week seem a disastrous one for the dollar. Highlights:

> The dollar plunged to a post-World War II low against the Japanese yen, sinking from 236.90 yen at the start of the week to as little as 233.05 before closing at 234.75. Two years ago, a dollar bought 303 yen. Only heavy buying of unwanted dollars by the Bank of Japan managed to contain the decline.

> The price of gold, that classic refuge of investors who lack confidence in the dollar, soared nearly $4 per oz. in a single day, one of the largest jumps in postwar history. In London and Zurich, gold hit $190 per oz., just below the alltime high achieved in December 1974. At week's end, though, it sank back to around $186.

> OPEC scheduled an early April meeting to discuss raising the price of oil, which has remained frozen for months. Reason: to offset the decline in value of the dollars in which OPEC's 13 members are paid for their petroleum. Saudi Arabia, OPEC's linchpin, is still opposed to a price boost, but whether it can prevail is becoming less certain. Iraq and Kuwait are among the leading OPEC members who demand a rise in prices and perhaps even an end to the dollar's role as the sole currency in which world oil prices are quoted.

> Robert Strauss, President Carter's chief trade negotiator, warned that the dollar's slide could jeopardize American efforts to achieve deep slashes in tariffs and a reduction in nontariff barriers to trade in talks now going on in Geneva.

Carter, in announcing the U.S.-German consultations, nonetheless expressed his indefatigable optimism about the state of the U.S. dollar. He pointed proudly to a stabilization of U.S. currency against the mark and Swiss franc that had already begun and said that the buck is now ''fairly well priced compared to foreign currencies." He forecast no increase in U.S. oil imports this year, which would hold down the surplus of dollars for sale on foreign exchanges. His clear implication was that the U.S. is building a strong defensive system for the dollar in conjunction with its major monetary allies, and that the worst is over.

The initial rebound of the dollar resulted from measures taken by the West German and Swiss governments to halt the rise of their currencies, which hurts their export-dependent economies. After weeks of heavy purchases of dollars, the West German central bank finally succeeded in arresting the decline of greenbacks against the high-flying mark and even managed to raise the battered dollar to a more reasonable exchange rate.

Switzerland, traditional safe citadel for flight capital from all over the world, two weeks ago in effect slammed shut its bank vaults to foreigners. Among other things, it ordered banks to charge foreigners 40% a year "negative interest" for the privilege of keeping deposits in Swiss francs and forbade purchase of Swiss stocks and bonds by nonresidents. At first the moves had little effect, but by last week they were beginning to show results.

Far from restoring confidence in the dollar, the German and Swiss measures have merely shifted the speculative play into the yen and gold, which underwent wild gyrations. For the first four days of last week, dollar bears poured more greenbacks into the Tokyo market than the Bank of Japan could buy--even though it intervened with big purchases. Japanese Prime Minister Takeo Fukuda expressed concern that the disruptive rise of the yen would thwart his efforts to accelerate the growth of the Japanese economy.

The Fukuda government, however, is also drawing up stand-by plans for currency controls, as are the West Germans, who vowed they would turn to them only as a last resort. Imposing controls would be a step back from free international movement of goods and investment money and is an indication of the economic disruption that could occur if the strength of the dollar proved to be illusory.

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