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To: goldsnow who wrote (7859)	2/24/1998 7:14:00 PM
From: goldsnow	Respond to of 116877

Asian turmoil may spur promotion of yen--sources 01:39 a.m. Feb 24, 1998 Eastern By Chikafumi Hodo TOKYO, Feb 24 (Reuters) - Financial turmoil in Asia may spur demand for yen for trade settlements, which could promote globalisation of the Japanese currency, market sources say. They say companies in the region having trouble rolling over short-term debt may consider converting dollar-denominated debt into yen, given the difficulty of raising dollars. ''If more firms (in Asia) switch settlements to yen, then that would accelerate promotion of the yen,'' said Daisuke Hiratsuka, deputy chief of statistical research at the Institute of Developing Economies (IDE). ''That could be a first step to promote the yen.'' If such a trend became popular, it could reduce burdens on Japanese banks, which are having difficulty raising dollars for lending. It would also fit in with Japan's stated intention of promoting use of the yen in trade settlements. An economic package announced by Japan's ruling Liberal Democratic Party last Friday included calls to increase settlements in yen in Japan's trade with other Asian nations The party also proposed giving the yen a greater role in Asia to help countries in the region diversify currency risks. ''Europe will be using two main currencies, the dollar and the euro. We are looking into a new currency system where the yen will play a central role,'' said senior LDP official Shin Sakurai. Party officials said the idea was not to create a new Asian currency like the European single currency to be launched in January but rather to make the yen easier to use as a key global currency. Earlier in February, Thailand's largest industrial conglomerate, Siam Cement Co Plc , announced it had agreed to convert about 30 percent of its $4.2 billion, U.S. dollar-denominated foreign debt into yen loans. More firms may follow the move, including companies from nations such as Indonesia, Malaysia and South Korea, which have substantial borrowings from Japan. According to the Bank for International Settlements (BIS), Japanese banks' lending to Asia totalled about $123.8 billion as of the end of June 1997. Of that, Thailand was the top borrower at $37.7 billion, followed by South Korea at $23.7 billion, Indonesia at $23.2 billion, China at $18.4 billion and Malaysia at $10.5 billion. Analysts said the yen could play a bigger role in trade settlements in the region if more firms in the region convert their dollar-based debts into yen. While it was ironic that problems in Asia could boost the status of the yen, Japan in any case needed to proceed with deregulation plans and structural reforms so that its financial system would meet global standards. ''Globalisation of the yen is absolutely necessary with or without the Asian financial turmoil,'' said Takeshi Ohta, head of an advisory council at Daiwa Research Institute. He said it was necessary to proceed with Japan's ''Big Bang'' financial deregulation as scheduled and lingering financial sector problems should not be a reason to slow the process. Ohta said demand for the yen was rising, but the economic climate in Japan was not encouraging foreign investors to increase their yen holdings. To attract demand, ''the yen must be a useful and safe currency.'' He said it was necessary to reform Japanese markets to meet global standards, including taxation. The yen could be chosen as a key alternative to the dollar if Japan proceeded with its efforts to deregulate its financial markets. ''Japan needs to open up further to match with standards of the world.'' Analysts said Japan must also mull ways to attract yen-denominated assets such as financing bills to make it easier for foreigners including Asians firms to hold them. Taisuke Tanaka, a strategist at Credit Suisse First Boston, said the yen could play a bigger role as a key currency if Japan could deregulate in a way that attracted the interest of foreign investors. ''The yen is a currency which is very difficult to use among foreigners. There is also doubt about the capability of Japan's monetary authorities in managing its monetary policy when the yen becomes more widely used.'' But he said Japanese monetary authorities will become more capable of reacting quickly in setting monetary policy as Japan proceed with its Big Bang reforms, in which it aims to liberalise its financial markets by 2001. ((Tokyo Treasury Desk +81-3 3432 8785 tokyo.newsroom+reuters.com)) ^REUTERS@