An interesting article and observation---
FX Asia dollar at Y160? Some see Y2K as
the trigger
The yen is holding up well in the face of Japan's recession, but some see
another threat looming: the year 2000 computer glitch.
Speculation is growing in the currency markets that slow progress by Japan in
resolving the problem will risk capital flight, putting the yen under downward
pressure.
The Japanese Government, banks and many other areas of the private sector insist
they're focusing on the problem and have recently accelerated efforts to deal
with it.
But among some foreign companies and officials, the suspicion remains that Japan
may be lagging far behind most other Group of Seven industrialised countries in
preventing possible malfunctions of older computers, whose calendar systems
could misread the year 2000 as 1900.
A US Senate committee, for example, issued earlier in March a report ranking
Japan in the third of four tiers -- meaning Japan is nine to 24 months behind
schedule in preparing for the bug. That readiness level is on a par with such
countries as Turkey, Mexico and India.
"Since the banking sector has proved to be one of the most aggressive sectors in
addressing the Y2K problem . . . underestimation on the part of the Japanese
banking sector may indicate even less awareness in other sectors," the report
warned.
Lack of resources at cash-strapped Japanese companies may be one obstacle to
solving the problem. Some also cite a general lack of sophistication in
information technology at many Japanese companies, compared to their US and
European counterparts.
"Poor readiness in the financial and other sectors could prompt Japanese money
to flee to well-prepared countries such as the US some time this year," says
Yukihiko Hashimoto, assistant manager of foreign exchange trading at Sanwa Bank
in Tokyo.
"Once capital-flight kicked in, the yen might plummet to Y160" against the
dollar, he adds.
Signs of concern emerge in markets
Signs of concern over the problem are beginning to emerge in financial markets.
The interest rate on euroyen December 1999 futures is around 0.48pc, almost
double 0.26pc rate for September futures. By contrast, the rate for December
eurodollar futures is 5.495pc, slightly up from 5.135pc for September futures.
"Although the gap is bigger for the US in absolute terms, the Japanese rates
have almost doubled. The jump certainly reflects market concern about slow
progress in Japan" on the year 2000 problem, says Yasunari Ueno, chief economist
at Fuji Securities.
Bankers say publicly that the problem isn't affecting business ties. But behind
the scenes there is talk that some Western banks may consider reducing exposures
to Japanese companies if they drag their feet in addressing the issue.
"Japan is almost totally dependent on foreign countries for its energy.
Procedures for importing oil and gas, for example, are nowadays managed by
computers. If they malfunction and oil imports are disrupted, that would hamper
economic activity in Japan," a Tokyo-based banker at a European bank told Dow
Jones on condition of anonymity.
"It may be safer for our business to reduce those kinds of exposures."
Several banking industry sources, Japanese and foreign, said US and European
banks had asked the Finance Ministry to slow down Japan's "Big Bang"
deregulation to give local banks and brokerages more time to prepare for the
computer problem. The ministry's response wasn't known.
Views on how much the problem could hurt the yen are divided. Some argue that
the worries are overblown.
"Since around the end of last year, Japanese banks have intensified efforts to
cope with the problem and we have almost solved the problem," says a bank
officer in charge of the Year 2000 issue at a major Japanese city bank.
"The possibility of the yen falling as a result of Y2K is not high."
But the perception that Japan is slow in coping with problem remains strong
among Westerners. US-based research company Gartner Group issued a report late
last year warning that computers in Japan were likely to fail at a rate of 50pc,
compared with 15pc in the US.
"Given the insufficiency in addressing the problem in all fields of the Japanese
economy, this will increasingly become a negative factor for yen as the year
2000 approaches," says Shuji Takano, assistant manager of foreign exchange at
ABN AMRO Bank.
"Vulnerability to the problem will be translated into less credibility for the
yen in the currency markets."
"It is a fact that Japan has recently intensified efforts to get rid of the
problem. But unless Japan also tries harder to advertise its efforts, downward
pressure on the yen will at least continue for the rest of the year and next,"
says Sanwa Bank's Hashimoto.
Dow Jones
afr.com.au
==================================================
Gartner says that computers in Japan are likely to fail at a 50% rate! Is there
still anyone who doubts that Japan is behind the 1st tier nations in
remediation? Yet the media keeps telling us we have nothing to fear - but fear
itself. Can the world economy withstand a 50% failure rate in Japan? No damn
Way! Yet those who prepare are going to be blamed for causing the problems.
After all, they are the ones who have really caused the problems! Right?
Teague
|
