Dollar in yen trouble
The yen is see-sawing again on the world's currency markets
The US dollar has hit a 27-month low against the yen.
One dollar now buys only ¥110.40, a far cry from last
year's high of nearly ¥150.
After sharp falls on Asia's currency markets the dollar
fell even further in European trading. Traders report that
the central banks of China and Japan intervene when the
yen slides below 111 yen to the dollar, while US funds
and Japanese exporters sell when it goes above that
level.
The weak dollar is bound to
hurt the Japanese export
industry and economists
warn that this threatens to
destroy any chance of a
recovery in the world's
second largest economy this
year.
The Japanese government
appears to blame Europe's
single currency, the euro, for
the turmoil. The strong debut
of the euro has clearly
startled the Tokyo
government. Japan's Trade Minister, Kaoru Yosano, said
he was concerned that the launch of the euro could
make the yen a "local currency".
Until recently, the yen was vying with the Deutschmark
for the number two spot on the world's currency markets
- behind the US dollar. The euro could force the yen into
third place, relegating it to a role as dominant currency
in parts of Asia but not anywhere else.
On Wednesday, Japan's
Prime Minister Keizo Obuchi,
will embark on a week-long
tour of Europe, and the euro
and its impact on the yen will
be top of his agenda.
Asked whether Japan had
waited too long to put the
yen on the world stage , Mr
Obuchi said: "To be candid,
what you say is right. We
have been dominated by the
dollar-oriented economy."
He acknowledged that the
euro was likely to be one of the two key currencies and
said that Japan felt a "sense of urgency" in making the
yen a fully-fledged third pillar of a monetary system
which was no longer totally dollar-dominated.
Economic threats
At the same time the government worries that the euro
will make the yen too expensive for the liking of
Japanese exporters. If investors dump the dollar in favour
of euros, the dollar could weaken against other
currencies as well.
Finance Minister Kiichi Myazawa has already suggested
that the yen's regained strength could be partly due to
the birth of the euro.
Yukihiko Hashimoto, of Tokyo-based Sanwa bank,
supports this view: "The euro's robust debut confirmed
the fact that the majority of market players feels uneasy
about holding dollars."
Another concern is the state of the US economy.
Japanese finance ministry officials say that it looks
"fairly bubble like". They are particularly concerned about
the level of US share prices and fear a market crash with
disastrous consequences for Asia's economy.
As a result, Tokyo's share market fell for the second day
in a row, with the Nikkei index of leading shares losing
1.4%. Traders said that investors were worried about the
prospects of Japan's export industries.
Euro tour
Government officials say that Mr Obuchi is likely to use
his tour of Europe to call for measures to bring more
stability to the global currency system. There are
suggestions that Japan could propose the creation of a
tri-polar currency system with a loose grid of exchange
rates among the yen, the euro and the dollar.
This would establish the yen on par with the dollar and
the euro and might relieve pressure on Japan's export
industry.
A spokesman for the prime minister, Akitaka Saiki, said:
"We will send out a message that Japan has done and
will do what is necessary to strengthen (the status of) or
globalise the yen."
During recent months Japan has taken several steps to
promote international investment in the yen, offering tax
exemptions for non-resident investors and selling
government bonds directly on the market.
news.bbc.co.uk
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