Dollar up vs troubled yen on Japan economic concerns
06:17 p.m Sep 30, 1998 Eastern
By Alden Bentley
NEW YORK, Sept 30 (Reuters) - The dollar climbed against the yen on Wednesday, shaking off lower U.S. interest rates as the focus on Japan's dismal economic conditions reintensified.
Investors also bought marks for the Japanese unit, weighing on the dollar against the German currency, which is benefiting from expectations that the Bundesbank will not match Tuesday's interest rate reduction by the U.S. Federal Reserve.
''Mark-yen is through the roof. It's likely Germany will not cut rates in the near future, the market is starting to believe, and Japan is just a mess,'' said James Powers, a vice president at Westdeutsche Landesbank Girozentrale.
The dollar rose to 136.63 yen, from 134.55 at Tuesday's close. It fell to 1.6695 marks from 1.6740.
Japan's benchmark Nikkei 225-stock index tumbled to a 12-1/2 year low as Japan's fragile financial sector took another blow when credit rating agency Moody's Investors Service downgraded Nomura Securities Co. Ltd., the country's biggest brokerage.
The ratings move came just days after a nonbank unit of Japan's nearly-insolvent Long-Term Credit Bank -- Japan Leasing Corp. -- collapsed, in Japan's largest corporate bankruptcy.
The yen was also sold before the expected release of the widely-watched quarterly tankan survey of business sentiment on Thursday.
Traders said the yen could weaken even more after Thursday, the first day of Japan's new financial half-year. The yen had risen from the eight-year low set against the dollar in August as Japanese firms sold foreign assets for yen to dress up domestic balance sheets for the end of the accounting period.
But trade should be cautious ahead of talks by the Group of Seven industrial powers on Saturday in Washington, where some expect a coordinated statement of support for the yen.
''I think the market is a little bit concerned the G7 might come up with a new twist or wrinkle for the yen,'' David Gilmore, partner at consulting firm Foreign Exchange Analytics, said. ''Beyond that there is not much else restricting the yen from declining.''
With Japan mired in the deepest recession since the Second World War, showing little or no economic growth while the rest of the world expanded in the 1990s, yen-denominated interest rates are lower than those of any other major currency.
Investors prefer the safety and higher returns of assets in Europe and the United States, even though the Fed started bringing U.S. interest rates down this week, lowering a key target rate by a quarter percentage point.
Meanwhile, Germany is trying to ensure a stable launch of European monetary union in January, and has been resisting international calls that it participate in concerted interest rate cuts to stabilise global markets.
The International Monetary Fund on Wednesday stressed the need for major economies to stimulate, recommending easier monetary policy for 90 percent of the world's economies to avert global recession.
Elsewhere, the British pound fell to $1.7000 from $1.7085.
The dollar fell to 1.3793 Swiss francs from 1.3867 and rose to Canadian $1.5315 from C$1.5103.
Copyright 1998 Reuters Limited |
