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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: MythMan who wrote (58515)	8/25/1999 8:11:00 AM
From: Lucretius	Read Replies (2) \| Respond to of 86076

Yen's bull run seen overwhelming speculator sales By Yoshiko Mori TOKYO, Aug 25 (Reuters) - The yen's bull run based on an improved outlook for Japan's economy is likely to overcome sporadic dollar purchases seen by U.S. hedge funds apparently scrambling to minimise losses, traders in Tokyo say. ''We hear that major U.S. hedge funds are caught long in the dollar and short in Japanese banking shares and some of them are even paying margin calls,'' said a general manager at a major Japanese bank, who declined to be named. Trader said these funds are looking for every opportunity to boost the value of the dollar to unwind their long dollar positions, and the latest push came on Wednesday when the dollar spiked up two yen amid rumours of Bank of Japan intervention. The greenback hit a fresh seven-month low of 110.40 yen in early Tokyo on Wednesday, but within 30 minutes it rocketed briefly to 112.40 yen. It then eased back as traders dismissed the intervention talk, while speculative dollar purchases by hedge funds were detected. It was trading at around 111.45 yen at 0845 GMT. Hedge funds' dollar purchases ''are an act of desperation, like the one seen this morning. They have been behind the brutal volatility in the dollar/yen rate,'' said a trader at the arbitrage desk of a major European brokerage firm. Tiger Management, the world's second-largest hedge fund with assets of $12 billion, has had performance problems this year with a loss of 13 percent, or more than $1 billion, since January. George Soros's flagship Quantum fund with $7.6 billion assets confirmed that the fund lost about 10 percent of its assets, or $700 million, earlier this year because of a soured investment in Internet stocks. Tokyo traders say, however, that such speculative dollar purchases for yen will do little in the long run to restrain yen bulls or dollar bears. ''I don't think an occasional rally backed by speculators could change the basic course of the U.S. currency,'' said Minori Takeuchi, vice president at the Research Group in the Global Trading Division of Chase Manhattan Bank. The market's radar is firmly tuned in to the improved outlook of Japan's economy, she said. Richard Jerram, an economist at ING Baring Securities Tokyo, agreed, telling Reuters Television: ''It still seems to us that the consensus is far too low in terms of estimating the strength of cyclical rebound (of Japan's economy).'' The main driving force for financial markets this decade has been changing expectations on the Japanese economy, he added. That shift is most apparent in the stock market, where the main Nikkei index of 225 shares has risen 29 percent this year. Overseas investors bought a net 4.6819 trillion yen ($42.17 billion) worth of Japanese stocks in the first half of this year, up sharply from 324.5 billion in preceding half year, fuelling demand for the yen. ''There is no sign of foreign investors' enthusiasm for Japanese stocks wearing off,'' said Takeshi Hanai, executive manager of the International Treasury Department at Industrial Bank of Japan. He added that authorities appeared to be ready to tolerate the yen's current strength as it encourages companies to further restructure, although it was still possible they would conduct a ''smoothing'' intervention if the rise was too rapid. Even a wider gap in the U.S.-Japan interest rate as a result of Tuesday's interest rate hike by the U.S. Federal Reserve is not persuasive enough to spur buying of U.S. assets, as long as fears linger of the dollar falling further, traders said. The Federal Reserve raised the fed funds rate to 5.25 percent from five percent and the discount rate to 4.75 percent from 4.5 percent. The U.S.-Japan rate gap, as gauged by benchmark bond yields, was 395 basis points on Wednesday, up from 352 basis points in mid-January. ''The dollar will stay weak as the market has turned its focus on the debt financing ability of the United States,'' Takeuchi said. The market is growingly interested in the U.S. balance of payments deficit and in a widening credit spread between U.S. Treasuries and corporate bonds, she added. The International Monetary Fund has forecast the U.S. balance of payments deficit will rise to a record $310 billion this year.