Forex market bides time as Obuchi forms cabinet
02:24 a.m. Jul 26, 1998 Eastern
By Tamawa Kadoya
TOKYO, July 26 (Reuters) - The currency market will give the newly
elected head of the ruling Liberal Democratic Party (LDP), Keizo Obuchi,
some breathing room as he organises his cabinet and the implementation
of economic policies to boost the ailing economy, dealers and analysts
said.
Dealers said the dollar should move within a range of 137.50 to 142.50
yen next week, as markets kept a close eye on how quickly Obuchi -- seen
as a consensus builder -- could pull the party together to implement
policies to boost the ailing economy and reform the banking sector.
Some analysts regarded Obuchi's landslide victory as a positive for
Japanese financial markets.
''Obuchi's win will mean that the likelihood of legislation being passed
is better than (if either of) the other two candidates (had won), and
will likely prove better for the markets,'' said Kenneth Landon,
Deutsche Bank chief strategist.
A senior dealer at an American bank agreed.
''The fact that Obuchi won decisively indicated how unified the LDP was,
and that was taken favourably.''
While Obuchi is unlikely to provide drastic policy measures, dealers
were encouraged that he was the only candidate who had proposed specific
numbers -- such as the six trillion yen in permanent tax cuts -- in
outlining his economic policies during his campaign.
The dollar would likely hold a steady tone next week as currency markets
waited for Obuchi to form a cabinet and come up with details on his
economic plans.
The dollar had stabilised against the yen in Tokyo trade on Friday,
after initial gains on disappointment over Obuchi's victory were quickly
pared by selling from Japanese and U.S. operators, dealers said.
It then rose modestly against the Japanese unit in Friday's New York,
trading at around 141.67 yen in late U.S. trade.
But there was no doubt that Obuchi was still racing against time as
foreign exchange markets had set a deadline of only a couple of weeks to
implement his economic policies -- or face another assault on the yen.
''It's a battle against time,'' said Ryosuke Tsuji, senior vice
president of the foreign exchange department at Societe Generale in
Tokyo.
Obuchi, virtually certain to become prime minister because of the LDP's
majority in the Lower House of parliament, told his inaugural news
conference at the LDP on Friday that his top priority was easing
people's concerns about the economy.
Another key factor in swaying the yen would be the appointment of a
finance minister in the new cabinet due to be formed at the end of the
month, dealers said.
Speculation that Seiroku Kajiyama, former chief cabinet secretary and
second runner-up in the LDP race, would be made finance minister, was
seen buoying the Japanese currency.
But on Sunday, an LDP parliamentarian close to Kajiyama said the veteran
politician, who had called for a ''major surgery'' of Japan's banks and
their bad loans, was unlikely to accept the post to head the powerful
Ministry of Finance (MOF).
Asked if Kajiyama would accept a MOF appointment, the LDP's Shizuo Sato
said: ''I don't think he'll take it.''
The yen could also be dragged lower by concerns over Japan's financial
system, which continued to lurk, dealers said.
Regional Japanese construction firm Asakawagumi Co Ltd (1864.OS) said on
Thursday it had filed for court protection from its creditors with debts
totalling 60.3 billion yen ($425 million).
Meanwhile, Kiyo Bank Ltd, a creditor of Asakawagumi, said on Friday it
might not recover loans totalling 15 billion yen made to the failed
firm.
Separately, rumours of financial difficulties at Taiheiyo Securities Co
Ltd, a broker affiliated to the now-defunct Yamaichi Securities, helped
lift the dollar against the yen on Friday despite the company denying it
faced any troubles.
((Tokyo Treasury Desk +81-3 3432 8027
tokyo.newsroom+reuters.com))
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