129. Memorandum From Secretary of the Treasury Blumenthal to President Carter1


  • Visit of Prime Minister Fukuda

The appreciation of the Japanese yen vis-a-vis the U.S. dollar over the past six months has caused Prime Minister Fukuda both economic and political difficulties. About six weeks ago, he instructed his cabinet to seek out every possible opportunity to make high-level representations to the U.S. about the need for U.S. action to stabilize the dollar.2

Japanese irritation was exacerbated by the fact that the U.S. was intervening by selling Deutschemarks but not by selling yen. It is neither politically feasible nor economically appropriate for us to intervene to support the yen-dollar rate, especially while Japan is running large trade and current account surpluses.

For the time being, Japanese concern over the yen-dollar rate has eased because the dollar has been slightly firmer for the past month. Recognizing that the U.S. is not prepared to commit itself to support the dollar against the yen through intervention, Fukuda has now established a public posture which will enable him to treat our announced [Page 391] intention to promote the stability of the dollar through action on the fundamentals (energy and inflation) as responsive to his request.

Nevertheless, the appearance of discrimination in our treatment of the yen and the Deutschemark rankles Fukuda personally and hurts him politically. As a means of easing this problem, we have offered to upgrade the consultations3 between our monetary authorities to the level of our consultations with the Germans.

This will mean daily4 telephone contact between officials directly responsible for exchange market developments.

We understand that Fukuda is highly pleased with this suggestion and wants to convey the Japanese response to you personally. In his comments to the press he will probably wish to treat the arrangement as an achievement of his visit.

If we are asked about it subsequently we would be prepared to state as follows: “In view of the importance of exchange rates to our broader economic relationship, we have agreed to strengthen the consultative procedures between U.S. and Japanese monetary authorities. For some time we have had consultations with German authorities daily. Similar procedures will now apply to Japan.”5

W. Michael Blumenthal6
  1. Source: Carter Library, National Security Affairs, Brzezinski Material, VIP Visit File, Box 8, Japan: Prime Minister Fukuda, 4/30/78–5/6/78: Cables and Memos. Confidential. Carter wrote at the top of the page: “ok. J.” The memorandum was sent to Carter under cover of a May 1 memorandum from Owen, who noted that “the daily consultation referred to in this memo would be between the Federal Reserve Bank of New York, as the US Treasury’s agent, and its opposite number, the Bank of Japan. Communication between our Treasury Department and the Japanese Finance Ministry would also be more frequent. It may not amount to much substantively, but it will give Fukuda something to take home and therefore it could be important politically.” (Ibid.)
  2. In his March 31 reply to Carter’s March 27 letter (see footnote 1, Document 124), Fukuda asserted that Japan’s ability to reduce its current account surplus depended upon the major industrialized nations strengthening “their concerted action for stabilizing the world economy, especially the international monetary situation. I sincerely hope that the United States, which is the key currency country, gives due considerations to it.” (Letter from Fukuda to Carter, March 31; Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File, Box 11, Japan: Prime Minister Takeo Fukuda, 1–12/78) According to telegram 6538 from Tokyo, April 15, during an April 14 meeting with Schultze, Fukuda “spoke candidly about his expectation that U.S. as world’s largest country whose currency is key currency would show greater concern about decline of dollar lest further declines lead to oil price increase, reversal of progress of last five years and resultant political confusion and chaos.” (National Archives, RG 59, Central Foreign Policy File, D780161–1041)
  3. An unknown hand underlined the phrase “upgrade the consultations.”
  4. An unknown hand circled the word “daily” and wrote a question mark above it.
  5. The final four paragraphs of this memorandum are highlighted. In his May 1 cover memorandum to Carter, Owen noted that he had “sidelined” those portions of Blumenthal’s memorandum dealing with the new procedure for U.S.-Japanese monetary consultations.
  6. Blumenthal signed “Mike” above this typed signature.