Dollar Falls for 2nd Day on Talk Japan's Tax Cuts Will Exceed
Expectation
Dollar Falls vs Yen on Talk About Japan's Tax Cuts (Update1) (Updates
story to show that U.S. stocks rose. Updates rates.)
New York, Aug. 5 (Bloomberg) -- The dollar fell for a second day against
the yen after Japanese officials said the government may cut taxes more
than previously expected in an attempt to lift Japan from its worst
recession in 50 years.
Japanese Finance Minister Kiichi Miyazawa said Prime Minister Keizo
Obuchi will announce tax cuts ''substantially'' greater than the
expected 6 trillion yen during his policy speech on Friday. The dollar
slipped to 144.00 yen from 144.92 yen late yesterday in New York.
''They're proposing tax cuts across the board, where everybody gets
something,'' said Thomas Benfer, a manager of foreign of exchange at
Bank of Montreal. ''It's the right kind of talk and it's helping the
yen.''
The dollar gained versus the deutsche mark as U.S. stocks rose a day
after posting the biggest drop of the year. The U.S. currency climbed to
1.7705 marks from 1.7682 yesterday. ''As a precondition for the dollar
to move higher, you need a rising U.S. equity market,'' said Robert
Fullem, head of currency sales at NatWest Global Financial Markets.
The Dow Jones Industrial Average rose 59.47 points after diving 299
points yesterday. Falling U.S. stocks hurt the dollar because
international investors typically sell the dollars they get from selling
U.S. shares.
Bigger Cuts
Japanese Prime Minister Obuchi has already pledged to reduce income and
residential taxes by 4 trillion yen and corporate taxes by 2 trillion
yen. Two senior ruling Liberal Democratic Party politicians told
Bloomberg News yesterday that the tax cuts may amount to 7 trillion yen.
The tax cuts are aimed at sparking a recovery in Japan, which is mired
in a seven-year slump. Gross domestic product for the year through March
shrank 0.7 percent. ''You're seeing a bit more positive sentiment about
Japan,'' said Richard Koss, currency strategist at MFR Inc., a money
management firm. ''Just a bit of a sense that Japan will turn around can
be enough to get international investors to buy more Japanese stocks and
help lift the yen.''
Traders said the dollar's decline against the yen will probably be
temporary, as the outlook for Japan's banking system, burdened with 77
trillion yen of bad loans, is still so gloomy.
Obuchi's Cabinet took its first step to resolving the banking crisis by
submitting legislation to parliament today. The centerpiece of the
government's ''total plan'' is legislation that would allow the
government to take over management of insolvent banks and create
''bridge banks'' to provide continued funding to reliable borrowers.
Actual debate over the bills won't start until Aug. 17, and the ruling
party aims to pass the bills by early September in the lower house.
''We're still looking for the yen to resume a weakening trend'' in
coming months, said Ruaridh MacDonald, who helps oversee about $15
billion at Dresdner RCM Global Investors. He sees the Japanese currency
falling to as low as 155 against the dollar by year-end as Japan's
economy remains weak.
Jay Wertheimer, senior trader at Banco di Sicilia, said there are orders
to buy the dollar clustered around 143.50 yen, while there are automatic
orders to sell the dollar at 144.50 yen.
Intervention Jitters
Japan's leaders have not ruled out entering the foreign exchange market
to bolster their currency by selling dollars for yen.
Miyazawa said yesterday that ''disruptive'' moves in the yen, which is
down 9 percent this year against the dollar, could warrant
''intervention in the foreign exchange market.''
Miyazawa's comments ''are not idle threats,'' said Adam Cribben, a
trader at Credit Lyonnais. Even so, he said the Japanese authorities
know ''the market does determine its own level and intervention probably
won't work in the long term. It would have to be backed up by banking
reform and measures to reflate the economy.''
The dollar also got a lift against the mark after Germany said new
manufacturing orders fell 1.1 percent in June, traders said. Economists
polled by Bloomberg predicted orders to rise 0.5 percent.
The report fanned expectations the German economy won't be able to
sustain its growth from the first quarter, when gross domestic product
grew 3.8 percent at an annual pace.
Elsewhere, the British pound was little changed at $1.6354 from $1.6378
yesterday. The dollar was steady at 5.9365 French francs from 5.9420, at
1745 Italian lire from 1745 and at 1.4894 Swiss francs from 1.4971
yesterday. It was trading at 1.5185 Canadian dollars, little changed
from 1.5163 yesterday.
bloomberg.com@@82q53AcAnORyBwzv/news2.cgi?T=news2_ft_topww.ht&s=570421662 |
