Dollar Falls Vs Yen As Candidates For Japanese Premiership Hint At
Reform
Dollar Falls vs Yen as Japan Aspirants Hint at Reform (Update1) (Adds
details on German reports at end. Updates rates.)
New York, July 17 (Bloomberg) -- The dollar fell against the yen for a
second day after the two leading candidates for Japan's prime minister
suggested they would accelerate efforts to lift the economy out of
recession, and after a report showed the U.S. trade deficit swelled to a
record high.
Foreign Minister Keizo Obuchi, favored to win, proposed tax cuts of 6
trillion yen ($43 billion), while Seiroku Kajiyama, a former cabinet
secretary who supports closing weak banks, said the government's
existing bank bail-out plan is incomplete and more reforms are needed.
Both declared their candidacy today. ''People are more comfortable that
the government has the guts to put in place the programs necessary to
turn the economy around,'' said Alan Resnick, treasurer at Bausch & Lomb
Inc., the Rochester, New York-based eye-care product maker. That's
helping bolster the yen.
In late New York trading, the dollar fell to 139.47 yen from 140.21
yesterday in New York. Earlier, if slumped to 138.63 yen. The dollar is
down 1.4 percent versus the yen this week, though it's up 6.7 percent so
far this year.
The U.S. currency also fell to 1.7814 marks from 1.7878 marks, after a
report showed Germany's trade surplus widened to a record, suggesting
exports to Europe are offsetting a slump in Asia and pushing Germany's
economy further along the road to recovery. The dollar declined 1.9
percent against the mark this week, and it's down 1 percent for the
year.
The yen gained as Obuchi and Kajiyama separately said the government has
to spend more to spur economic growth, suspending a long-standing goal
to slash the budget deficit. The ruling Liberal Democratic Party will
choose one of them as prime minister next Friday. 'Optimistic' ''The
market is optimistic that the new leader will push through aggressive,
growth-minded reform,'' said Rebecca Patterson, a currency strategist at
J.P. Morgan in London.
Some traders are buying yen amid hope that Japan's new government will
cut taxes, step up public spending and speed reform of the debt-strapped
banking system.
In the year ended March 31, the Japanese economy slid into its worst
recession in more than half a century. That, and LDP losses in last
week's parliamentary elections, prompted current Prime Minister Ryutaro
Hashimoto to resign.
The U.S. currency extended losses after a report showed the U.S. May
trade deficit rose to its highest level since 1992, when the government
began tracking monthly goods and services trade. ''The trade number was
horrible for the dollar.'' said Hans Boman, chief currency trader at
Swedbank.
A growing trade deficit leaves more dollars in the hands of foreign
exporters to sell for their own currencies when bringing revenue home.
It also suggests that growth in the U.S. economy may slow in coming
months, reinforcing expectations that the Federal Reserve won't raise
interest rates any time soon. Higher lending rates would make dollar
deposits and bonds more alluring.
The trade deficit in goods and services swelled to a wider-
than-expected $15.745 billion, the Commerce Department said. 'Torturous'
Recovery
To be sure, some investors remain skeptical that Japan's next head of
government will be able to turn the economy around any time soon. ''I've
got to wait and see,'' said Bob Murdock, who helps manage $1.2 billion
at Analytic/TSA in Los Angeles. ''They've promised a lot of things down
the years and they have yet to deliver on them.''
The dollar could rise as high as 160 yen by September as Japan's economy
languishes, said J.P. Morgan's Patterson. ''Recovery will be a long and
torturous process,'' said John McCarthy, manager of foreign exchange at
ING Baring Capital Markets. ''Interest rates are at abysmally low levels
and it hasn't helped at all that consumers aren't spending and
businesses aren't investing.''
In a sign Japan is struggling to emerge from recession, a report this
week showed industrial production fell in May from April, the fourth
straight monthly decline. It also fell from the year-ago period, the
seventh straight year-over-year drop.
German Trade
The mark got support from a report showing that Germany's trade surplus
widened to a record 14.6 billion marks ($8.2 billion) in May. ''I like
the mark versus the dollar,'' said Murdock, of Analytic/TSA, adding that
he recently bought marks. ''The trade figures and other recent reports
showed strength.''
The report should ease concern that the slump in Asian economies will
crimp German growth this year, and should bolster the view that demand
is accelerating within Europe. Only 8 percent of all German sales take
place in Asia, including Japan.
Still, the mark is likely to be held back amid expectations that German
interest rates aren't headed higher any time soon. Swedbank's Boman
bought dollars at 1.7875 marks today on expectations the dollar will
gain. He also sold Swiss francs.
A report from the Federal Statistics Office due next week is expected to
show German import prices fell 0.1 percent in June, reinforcing the
benign inflation outlook.
Elsewhere, the British pound was little changed at $1.6461 from $1.6405
yesterday. The U.S. currency was little changed at 1.5027 Swiss francs
from 1.5038 francs. It fell to 5.9730 French francs from 5.9880 francs
and to 1756.50 Italian lire from 1761.50 lire. The dollar was little
changed at 1.4882 Canadian dollars from 1.4881.
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