For the first time in many a moon, there has been dramatic action and not just talk in the battle to reduce the huge trade gap between the United States and Japan. The dollar plunged on world markets Monday and Tuesday after President Reagan enunciated a tough new trade policy, rejecting protectionism and strongly demanding that Japan and other US trading partners open their markets wider.
Yesterday alone, the Bank of Japan sold nearly $1.3 billion. As a result, the yen rose to 230.10 against the dollar, compared to 242 to the dollar before the weekend (Monday was a bank holiday here.) Satoshi Sumita, governor of the bank, said that ``bold intervention'' of this kind would continue.
Other central banks belonging to the so-called Group of Five -- Britain, France, West Germany, the US, and Japan -- have taken similar steps. Finance ministers of the group met in New York Sunday to plot concerted action to bring the dollar down, and so far, they seem to be succeeding.
The over-valued dollar, most experts agree, is one of the main reasons American manufacturers have such a hard time selling their goods abroad. Some experts here say the dollar is as much as 40 percent higher than it should be against the world's other leading currencies. This means the dollar is going to have to come down quite a bit more and to stay down in a stable manner.
The problem has been particularly acute in the case of Japan, which racked up a $37 billion trade surplus with the US last year. A wave of protectionism has swept across Capitol Hill as a result.
President Reagan insists he will not take the protectionist road. He wants, rather, to expand world trade by encouraging lower tariffs and more open markets around the world, especially in Japan.
A cheaper dollar should mean more US exports to Japan and fewer Japanese imports into the US. But hitherto the Bank of Japan has been reluctant to intervene in world exchange markets in any big way because it knew that only a rare coordinated effort by all the major economic powers had any hope of success. Sunday's agreement by the Group of Five, including commitments on domestic policies, gave the bank the confidence to move boldly into action.
Of course, Japan will have to take other action as well -- opening wider its own markets and increasing domestic demand, encouraging individuals and institutions to spend more money at home instead of salting it away abroad. In his speech on Monday, Reagan set time limits for negotiating greater access to the Japanese market for specific American products.
Prime Minister Yasuhiro Nakasone said in a television interview scheduled for release today that Japan must cooperate with Reagan in his fight against protectionism by making determined efforts to open its market wider and to strengthen the yen.
While recognizing the need to stimulate domestic demand, Nakasone is reluctant to commit himself to deficit financing such as the construction bonds proposed by some members of the ruling Liberal Democratic Party.
But politicians love to spend money, particularly when they can link it to some noble goal such as stimulating growth or the world economy. The Liberal Democrats are preparing to send a party delegation to Washington headed by Vice-President Susumu Nikaido early next month, and Mr. Nikaido has said that it will not be worth his while to go unless he can take a package of specific commitments designed to show immediate results. Party elders want government subsidies to encourage housing, to stimulate dom estic demand, and to draw in imports.
A government statement yesterday, couched in much more general terms, welcomed Reagan's ``strong commitment to maintaining and strengthening a free and fair trading system,'' and said Japan had to ``carry out its responsibility and role in international economic society.''