Dollar Falls Against Yen on Concern Long-Term Capital Will Sell Dollars
Dollar Falls vs Yen Amid Concern U.S. Hedge Funds Need to Repay
Tokyo, Sept. 25 (Bloomberg) -- The dollar fell against the yen for a second day as speculation mounted that troubled U.S. hedge funds may sell dollars to repay yen loans.
Traders speculate Long-Term Capital Management LP, a Greenwich, Connecticut-based hedge fund, borrowed yen at Japan's low lending rates, then converted it into dollars to invest in securities elsewhere. Even though the fund received a $3.5 billion bailout to cover losses of $4 billion, traders worried it will have to pay back its yen loans. ''Japanese investors are concerned that U.S. hedge funds will continue to sell dollars for yen, so the dollar won't easily recover 135 yen today,'' said Hiroshi Sakuma, a foreign exchange manager at Barclays Bank Plc.
The dollar was quoted at 134.47 yen, down from 134.83 yen in late New York trading yesterday. It recently traded at 1.6728 marks, down from 1.6765 marks in New York. ''Many U.S. hedge funds are suffering from poor performance, so we have begun to worry these funds' near-collapse will have an adverse impact on the health of the U.S. financial system,'' said Sakuma.
The Dow Jones Industrial Average fell 152.42, or 1.9 percent, to 8001.99 yesterday, led by banks which lend money to hedge funds. Falling stocks hurt the dollar by making dollar- denominated assets less attractive.
Weighing on the dollar was speculation that the U.S. may lower the Fed funds target rate from the current 5.50 percent when its policy-making panel meets on Tuesday. Fed Chairman Alan Greenspan indicated Wednesday that he may push for a rate cut. ''If the U.S. wants to cut rates, the country can't maintain its strong dollar policy because they contradict each other,'' said Sakuma. ''We can't buy dollars aggressively as long as there's mounting speculation that the Fed will ease its monetary policy.''
Even so, the dollar's fall may be limited because of continued political deadlock between the ruling Liberal Democratic party and opposition parties on bank reform bills.
Passage of the banking legislation is seen as a key step toward pulling Japan's economy out of its worst recession in five decades. ''Japanese investors are basically bearish on the yen because of continued wrangling between political parties over bank reform legislation, so the dollar's fall may be restrained,'' said Sakuma, who said the dollar will trade between 134 yen and 135 yen during Tokyo trading hours today.
In other trading, the dollar was quoted at 1.3845 Swiss francs, up from 1.3855 Swiss francs in late New York trading yesterday. The British pound was quoted at $1.6962, up from $1.6854 in New York. The mark was quoted at 80.35 yen, down from 80.42 yen.
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