Dollar Rises For Fifth Day Against Yen on Gloomy Outlook for Japan's Banks
Dollar Rises vs Yen on Grim Outlook for Japanese Banks
Tokyo, Oct. 26 (Bloomberg) -- The dollar rose for a fifth-
straight day against the yen amid a gloomy outlook for Japan's
weakened banking system and stagnant economy, traders said.
The Japanese government Friday took over troubled Long-Term
Credit Bank of Japan Ltd. and Moody's Investors Service said it
may cut the ratings of four major Japanese banks.
''Under such circumstances, it would be reasonable to think
the dollar will regain more ground against the yen,'' said
Hiroshi Sakuma, a foreign exchange manager at Barclays Bank Plc.
The dollar was quoted at 118.45 yen, up from 118.07 yen in
late New York trading Friday. It was quoted at 1.6435 marks, up
from 1.6391 marks in New York.
The U.S. rating agency said Friday it's reviewing the ''A1''
rating of Bank of Tokyo-Mitsubishi on concern economic conditions
in Japan and the rest of Asia are worsening. It also placed the
ratings of Sanwa Bank Ltd., Industrial Bank of Japan Ltd. and
Sumitomo Bank Ltd. under review.
Japanese banks are saddled with problem loans of at least 77
trillion yen ($647 billion), making them reluctant to lend
companies and undermining prospects for an economic recovery.
In a bid to boost ailing banks, Japan's parliament on Oct.
16 approved a 60 trillion-yen bailout package, which went into
effect Friday, and the LTCB became the nation's first bank to be
nationalized.
The nationalization ''is a reactive rather than a proactive
step,'' said Eric Fishwik, an international economist at Nikko
Europe in London. ''The government needs to have the power to
step in at a far earlier stage'' to mend foundering banks. He
expects the dollar to rise above 122 yen in coming weeks.
Investing Abroad
Since the dollar has plunged from the 136 yen level to 118
level this month, many Japanese individuals investors has
aggressively bought dollars to take advantage of the dollar's
dramatic decline, traders said.
''I've never seen so many individuals showing interest in
dollar deposits,'' said Keinosuke Sakamoto, a branch manager at
Citibank N.A. in Tokyo. ''Even housewives are coming to our bank,
taking their friends along, to buy dollars.'' They aim to seek
not only higher returns on dollar deposits but also to take gains
on foreign exchange, he added.
Dollar-denominated financial products are attractive because
the federal funds rate on overnight loans between banks is 5.0
percent, compared with Japan's discount rate of 0.5 percent.
Even so, many analysts and traders said the dollar will
unlikely to win back all of its losses it suffered this month
because Japanese exporters who failed to convert their dollar
profits into yen at above 130 yen may want to sell the dollar
above 120 yen, said Barclays' Sakuma.
He said the dollar will trade between 116.50 yen and 121.50
yen this week.
In other trading, the dollar was quoted at 1.3433 Swiss
francs, up from 1.3390 Swiss francs in late New York trading
Friday. The British pound was quoted at $1.6855, down from
$1.6876 in New York. The mark was quoted at 72.22 yen, up from
72.03 yen in New York.
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