THE DOLLAR’S FREE FALL : The Runaway Strength of the Yen Has Japan in Crisis Mode : Currency: Economists, business people say the nation’s competitiveness and fragile recovery are threatened.

TOKYO —  A sense of crisis swept Japan Wednesday as the dollar fell in Tokyo to yet another post-World War II low.

“I can’t think of any way to describe our feelings except to say that we’re in shock,” said Minoru Tsukada, spokesman for Oki Electric Industry Co., a leading manufacturer of communications equipment. “We never expected that the yen would get this strong.”

His comment reflected virtually universal sentiment here as the currency fell to a new global low of 88.75 yen to the dollar Wednesday before recovering.

After an emergency Cabinet meeting, Finance Minister Masayoshi Takemura told reporters the competitive position of Japanese exporters is seriously threatened by the yen’s appreciation. A stronger yen makes Japanese exports more expensive in dollars and therefore harder to sell, while also making them less profitable to the manufacturer in yen terms.

NEC Corp. Chairman Tadahiro Sekimoto, one of Japan’s most prominent business leaders, declared that not only is there a “real danger” to recovery in Japan, but that “we could be witnessing the beginnings of a crisis that could engulf the entire world economy.”

Still, anyone expecting the incredible strength of the yen to knock the stuffing out of Japan’s export industries should keep in mind this nation’s history of success in dealing with economic crises, be they caused by defeat in war, rising oil prices or previous bouts of sudden yen strength.

Stock prices usually fall when the yen strengthens, and that pattern was repeated again Wednesday, with the 225-stock Nikkei index falling 333.97 points, or 1.97%, to close at 16,621.31. In early trading today (Thursday), the yen inched back to 90.76 to the dollar from 91.33 at the New York close on Wednesday, and the Nikkei index rebounded 209.21 points to 16,330.52.

Japanese industry has proven remarkably successful in adjusting to the yen’s strength of the past two years, since the currency hit nearly 100 yen to the dollar in 1993. Strong exports to faster-growing economies, including the United States, have helped fuel a modest economic recovery even as Japanese imports grew still more quickly.

Now many Japanese firms are determined to redouble efforts to remain competitive by further belt tightening, restructuring and increased investment overseas.

Takeshi Nagano, president of the Japan Federation of Employers Assns. (the Nikkeiren), declared at a news conference Wednesday that Japan’s business world is “at the stage where our crisis-management ability is being tested.”

Despite a long tradition of pay increases every spring, Nagano said, it is “imperative” that wage costs be held in check this year to prevent a rise in unemployment as firms struggle to remain competitive. “I would not be surprised to see salaries decrease in some sectors,” he said. The organization Nagano heads plays a key role in setting the tone for labor negotiations each year.

Nagano and many other business leaders called on the Japanese government to do everything in its power to stem the yen’s rapid appreciation.

But Prime Minister Tomiichi Murayama said unilateral action by Japan would not be enough to curb the yen’s rise, and Minister of International Trade and Industry Ryutaro Hashimoto indicated that an interest rate cut aimed at weakening the yen is unlikely.

“We can’t play our last card yet,” Hashimoto said.

The government’s relative inaction left business leaders deeply worried.

Nobuo Tateishi, vice chairman of Omron Corp., said the yen’s strength has passed the stage at which individual companies can cope with the situation solely through their own efforts. Still, he stressed, Japanese firms must accelerate cost-cutting measures and increase production overseas.

“We cannot avoid doing these things,” Tateishi said.

Typical of the drastic measures being contemplated are plans apparently under way at Nissan Motor Co. to trim as many as 7,000 employees, or about 14% of the current work force, over the next three years. The expected cuts were first reported Monday by the Nikkei Shimbun, Japan’s leading financial daily.

“Frankly speaking, we have to continue to accelerate our restructuring plan, such as procuring more parts from overseas or increasing prices overseas, and our cost-reduction program, to absorb the loss from the exchange rate,” Nissan spokeswoman Masako Fujita said Wednesday.

Fujita said she could not confirm any figures in the Nikkei article. “This is closely related to our mid-term business plan,” she said. “It’s very top-secret.”

Not all Japanese firms are under such extreme pressure.

Sharp Corp., a dominant producer of liquid crystal display screens used in laptop computers, does not expect to be severely affected by the yen’s appreciation, according to spokesman Nobuo Minamihori. This is partly because purchasers need LCDs so badly that they are willing to sign contracts to buy them priced in yen rather than dollars, he said.

Even so, Minamihori said, Sharp may make greater efforts to expand overseas production of products such as TVs, VCRs and air conditioners for shipment to Japan, and also focus more attention on the domestic manufacture of such products as home video cameras.

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Times researcher Chiaki Kitada in Tokyo contributed to this report.

* DOLLAR REBOUNDS

Greenspan comments spark rally. A1

* WHAT DOES IT MEAN?

Answers on the dollar’s fall. D3

* NO EASY SOLUTIONS

U.S. government has few options for propping up dollar. D12

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The Dollar’s Value: A Global Perspective

Although the dollar’s plunge against the Japanese yen and German mark has been dramatic, the U.S. currency hasn’t fallen as sharply against most other currencies--and in some cases has appreciated rather than depreciated in recent years. One way to show the dollar’s overall health is to use a “trade-weighted” index of its value. A trade-weighted index reflects the dollar’s value against currencies of key trading partners, with each currency’s impact adjusted for the country’s importance to U.S. trade. The Morgan Guaranty trade-weighted dollar index and yen index, monthly averages except latest:

Source: Morgan Guaranty Trust Co.

WHAT’S BEHIND THE FALL

Why has the dollar fallen so sharply against the Japanese yen and German mark? Several factors are at work. Among them:

* America’s chronic trade deficit. The United States is importing $150 billion more in goods per year than it is exporting, which has the effect of sending dollars abroad to accumulate in foreigners’ hands. When the Japanese and Germans, for example, exchange these dollars for their own currencies, the buck’s value is driven down.

* Mexico’s crisis. The U.S. commitment to provide financial aid to its southern neighbor is viewed by some as an open-ended line of credit, which could unleash more dollars on the world market--and thus lower the dollar’s value.

* The federal budget deficit. Like the trade deficit, the budget deficit forces the United States to borrow from foreigners. Some analysts say the U.S. Senate’s failure to pass a balanced-budget amendment last week caused some foreign investors to decide that America will never get its fiscal house in order--and to flee into the mark and yen, which are viewed as more stable currencies.

* A perceived slowdown in the U.S. economy. The expectation of slower U.S. economic growth has lessened the likelihood of further rises in interest rates, causing some global investors to look for better--and rising--yields on other countries’ securities.