The dollar soared to its highest level against the yen in nearly five months today after the United States and Japan sold about $1 billion of yen and the Japanese Government moved to make it easier for institutions there to invest their yen abroad.
With international markets flooded with yen, the dollar rose 3.3 percent against the Japanese currency, standing at 90.96 yen in late New York trading, up from 88.04 yen on Tuesday.
Treasury Secretary Robert E. Rubin said the moves by both nations were consistent with an agreement made by the Group of Seven leading industrial nations on April 25, which called for an "orderly reversal" of the plunge in the dollar that occurred in the winter. Many currency traders took Mr. Rubin's remark as suggesting that the United States would intervene in the currency markets again, a line of thinking that Administration officials did not discourage.
Economists said the dollar's rise might damp sales abroad of American goods but would still help the overall American economy. By making imported goods slightly less expensive, a stronger dollar could diminish fears of inflation here and make it slightly easier for the Federal Reserve to stimulate the economy by cutting interest rates.
That possibility, as well as a belief that Japanese institutions would step up their investment in the United States, sent the stock and bond markets up sharply, with the Dow Jones industrial average rising as much as 55 points soon after the Fed began its intervention. Later, though, the Dow average gave up all of its gains when traders took profits. [ Page D8. ]
The stronger dollar and the Japanese Government's move to ease controls on overseas investments by financial institutions could also reduce the odds that Japan's banking crisis will spread elsewhere. Japan's ailing banks and insurance companies have invested huge sums in the United States, and a stronger dollar makes those investments worth more.
The changes in investment rules were announced today in Tokyo by the Ministry of Finance, Japan's bank regulator. The ministry is overseeing institutions with a total of at least $570 billion in bad debts and it witnessed a run this week on Tokyo's largest credit union. By giving Japanese banks and insurance companies more leeway to pursue higher yields abroad, the authorities hope to lower the yen's value; when Japanese institutions invest abroad, they sell yen and buy other currencies.
Mr. Rubin expressed concern last week about Japan's banking crisis and urged the Bank of Japan to do whatever was necessary. But in a statement today, he presented the joint intervention in the currency markets and the Ministry of Finance's policy changes as part of a continuing international effort to reverse the dollar's plunge.
"We welcome the actions taken by the Japanese authorities to remove impediments to capital movements," Mr. Rubin said. "These actions and our joint operations are consistent with the April 25 G-7 communique."
Mr. Rubin's statement left the impression with traders that the United States might take actions to push the dollar even higher. Administration officials nurtured that view today by sticking to their policy of refusing to speculate whether they would intervene again in the coming weeks.
Currency traders said that today's intervention, while not the biggest of this Administration, was particularly effective. They said it worked because it showed strong coordination between Tokyo and Washington and because Mr. Rubin again caught traders by surprise, making them reluctant to resist the Treasury by selling dollars.
"It's the most aggressive thing they've done so far, as far as trying to prevent the deterioration of the dollar against the yen," said David F. DeRosa, the director of foreign exchange trading in New York for the Swiss Bank Corporation.
Kevin J. Lawrie, a foreign exchange manager at Mellon Bank in Pittsburgh, said that the intervention was successful because traders were partly taken by surprise and quickly joined the Federal Reserve in buying dollars. "This thing seems like a tidal wave; it probably seems like more than it is," he said.
