Yen to remain strong until early next year
Despite a disappointing report on Japan's economic growth in the July-Sept. quarter, the yen is expected to remain strong against the dollar until the first quarter of next year, a government financial monitoring center said yesterday.
The Japanese government will have difficulty curbing the rise of the yen without joint intervention in the world's currency markets by the United States and the European Central Bank, the Korea Center for International Finance said in a report.
The weaker yen will help Japan pull its economy out of recession by boosting exports. But the United States is against such a "beggar thy neighbor policy" because it is already experiencing a huge deficit in trade balance, the financial center said. Without support from the United States, it is inevitable that major European countries like Germany and Britain will not intervene in their markets to support a weaker yen.
The yen-dollar exchange rate has kept falling since early last June, dropping to 101 yen to the dollar on Nov. 26, the lowest level since Nov. 1995.
Analysts attribute the yen's strength to the influx of foreign portfolio investments into the Japanese economy in expectation of a further rebound in the economy. In that sense, the yen should have started falling against the dollar because the Japanese economy contracted more than expected in the three months to Sept. 30. Japan's gross domestic product (GDP) shrank 1 percent in the third quarter of this year compared with the previous quarter. That decline translates into an annualized shrinkage of 3.8 percent.
But the yen has remained strong against the dollar. The dollar was quoted at 102.47-49 yen in Tokyo early yesterday, against 102.83-86 yen Tuesday afternoon.
The financial center provided a different reason for a strong yen, saying that foreign capital is moving into the Japanese economy in fear of interest rate hikes in the United States and Europe.
To support this view, the center said that foreign investors saw higher returns on their investments in bonds and stocks in Japan during the first 11 months of this year than they did in the United States and Europe. This was because investors who purchased bonds and stocks in the United States and Europe saw huge losses due to interest rates hikes in the regions, the center said. But those invested in Japanese bonds and stocks earned relatively high profits as the Japanese government kept interest rates almost unchanged.
It is still uncertain if the United States and the European Central Bank will raise interest rates further, but the Japanese government is expected to stick to its zero interest rate policy for a while to support its economic recovery, the financial center said.
As a result, the yen is very likely to remain strong against the dollar until the first quarter of next year, when the United States and the European Central Bank are expected to raise interest rates, it said. Foreign investors then may transfer their money from Japan to the United States in the second quarter of next year, if they get clear signs that the United States will no longer raise interest rates, the center added.
Updated: 12/09/1999
From Korean Herald |
