Sacrificing the Dollar to Save the Yen

In a highly unusual show of fiscal solidarity, the U.S. Treasury today launched a selloff of its own currency, hoping that driving down the dollar would arrest the fall of the yen. "The Japanese recession has set off alarm bells in Washington," says TIME correspondent Bruce Van Voorst. "If the yen continues to fall, it will put pressure on China and other Asian economies to devalue their currencies to remain competitive, and that would have a disastrous effect on the already huge U.S. trade deficit."

The selloff was the surest sign that the global danger posed by the Asian crisis is far from over. But Van Voorst believes the action won't be sufficient to save Japan: "The few billion that the U.S. spends on propping up the yen are spit on a hot stove," says Van Voorst. "They're important mostly as a psychological reassurance to Tokyo. It's up to the Japanese to get themselves back in shape." Japan has been sluggish in responding to G7 pleas for urgent action, but Treasury official Larry Summers flies to Tokyo later today to press the case. Because as Monday's 200-point drop in the Dow on news of Japan's recession confirmed, Washington and Tokyo are in this together.