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Wednesday, July 7, 1999 Published at 16:18 GMT 17:18 UK

Business: The Economy

'Mr Yen' stands down

The man who could move the currency markets

The retirement on Thursday of Japan's most senior official dealing with the international economy marks the end of an era in economic co-ordination.

For the last decade Eisuke Sakakibara has been to the world's currency markets what Alan Greenspan is to interest rates - the key player whom everyone listens to.

[ image: Eisuke Sakakibara managed the yen for half a decade]
Eisuke Sakakibara managed the yen for half a decade
His words moved markets, sometimes with dramatic swings.

But on Thursday he finally steps down, replaced by his soft-spoken deputy Haruhiko Kuroda.

Mr Sakakibara's power was as much to do with his personality as his official position as Vice-Minister for International Finance.

In a world of consensus politics, Mr Sakakibara was outspoken and willing to be quoted on the record.

And he represented the strong sense of shared purpose by the Japanese government bureaucracy, which ran the country's economic policy virtually regardless of who was Prime Minister.

Mr Kuroda is expected to maintain Mr Sakakibara's current policy of weakening the yen to boost exports by big Japanese companies.

But he may have less influence on the big questions of re-organising the world financial system after last year's crisis, and he is less close to US Treasury Secretary-designate Lawrence Summers.

International co-ordination

Mr Sakakibara, who said he spoke to Mr Summers on the telephone every day, represented the generation of officials who believed fervently in international co-ordination to manage the currency markets.

That tradition goes back to the Plaza Accord, the agreement reached in a New York hotel in 1985 to weaken the soaring dollar.

More recently, Mr Sakakibara was the key official involved in the wild ride of the yen against the dollar in the last half-decade, first boosting and then weakening the Japanese currency by his remarks and market actions.

Just before the world economic crisis broke, the dollar had plummeted to a new low of around ¥80 to the dollar, and Mr Sakakibara won his spurs by engineering its rise.

Boosting the yen

But as confidence in Japan's recovery waned, and the US economy soared, that position was reversed.

Most of his past two years have been spent in a fruitless attempt to boost the yen and reassure the world that the Japanese economy is on the mend.

Those efforts ended in failure one year ago when the US Government was forced to intervene to rescue the yen, which had fallen to a record low of ¥147 to the dollar.

The new Japanese Government, partly at Mr Sakakibara's urging, did pass a significant measure of banking reform, and several packages designed to reflate the economy. But Japan's economy continued to decline deeper into recession.

Mr Sakakibara attacked the US economy, saying that it was also a "bubble-economy".

Finally, in February, the Japanese Government bowed to the inevitable. A weak yen, coupled with interest rates that approached zero, was now the only hope of economic recovery.

As ever, it was Mr Sakakibara who announced the change.

"It is natural for the yen to depreciate on monetary easing. We welcome this," he told the financial markets.

And as so often, the intervention was successful. So far the Japanese government has succeeded in holding the yen at around its target rate of ¥120 to the dollar.

Mr Sakakibara has not always made the right call on world currency markets. His predictions that the euro would rise to become a rival to the dollar have not, so far, been fulfilled.

Saving global capitalism

In recent months Mr Sakakibara has played a prominent role in the discussions about international financial restructuring.

He argued that the main industrial countries should work together, pegging exchange rates and providing support for weak currencies.

"Otherwise, the 21st century could become the century of major turbulence and collapse of global capitalism," he said.

He was also highly critical of the International Monetary Fund's role in the Asian crisis, and attacked the "Washington consensus" of free market reform.

But his - and Japan's - position was rejected by the United States, which succeeded in imposing a more laissez-faire vision of global economic reform on the world's stage.

Unusual combination

Mr Sakakibara, like many Japanese finance officials, was educated in the United States, where he received his PhD from the University of Michigan.

He briefly taught at Harvard along with Lawrence Summers, but has spent nearly his entire life within the bureaucracy after graduating from the elite Tokyo University.

His successor and current deputy, Mr Kuroda, was educated at Cambridge and prefers to quote Tolstoy to polemical economic arguments.

It will be a contrast that the world's currency markets will need to get used to.

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