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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (4686)	6/19/1998 7:12:00 PM
From: Michael Sphar	Read Replies (1) \| Respond to of 9980

Breath holding time: The yen would be back to 145 against the dollar, "and lower, so fast it will make people's heads spin," he said, and this time it would be much harder to save since the United States had already stuck its neck out. For personal and private use only: Fate of yen, Asia hangs on Japan's response at G7 crisis meeting Fri, 19 Jun 1998 7:04:43 PDT Story from AFP / David Williams Copyright 1998 by Agence France-Presse (via ClariNet) TOKYO, June 19 (AFP) - The fate of the yen and Asia's economy hangs on Japan's reaction to this weekend's crisis meeting of the Group of Seven and regional financial officials, analysts say. Sceptical economists already fear the worst -- that Japan will fail to deliver a convincing plan of action, rather than words, to solve its banking crisis and cut taxes to battle recession. Garry Evans, strategist at HSBC Securities in Tokyo, said Washington had intervened to support the sliding yen Wednesday only on Prime Minister Ryutaro Hashimoto's promise of action on bad loans and taxes. Hashimoto "will now have to at least give the appearance of sticking to his word," he said. "But the Japanese government is a past master at producing plans that look attractive but have very little substance," he added. "We believe it is unlikely to announce any measures that are new or radical." With only a 20 percent chance of radical new measures from Japan, the risk was that the yen would slump from its levels of around 137 against the dollar to 160 by the end of this year and 170 in 1999, Evans said. Japan's stock market would likely rally for a short period on hope of a policy switch "but we think that disillusion will soon set in." At the table here Saturday will be deputy finance ministers from the Group of Seven (G7), their counterparts from 11 Asian nations, including China, and officials from the International Monetary Fund (IMF) and World Bank. Kenneth Courtis, strategist and chief economist at Deutsche Bank Group in Tokyo, said Japan was "completely isolated" because neither the G7, Asia, nor the markets could live with its policies. "The number one concern is the withdrawal of Japanese credit which is slowly smothering the economies of the region," he said. This made it impossible, for example, for China to raise money through the Hong Kong stock market, the main source of funds for its reform program, Courtis added. Markets wanted Japan to deliver a credible bank bailout in which sick banks collapse but creditors and depositors are protected, a permanent tax cut and statement on deregulation. "If the meeting on the weekend ends without credible commitments on those three areas and a commitment that Japan is going to carry them out then the markets will riot on Monday," Courtis said. The yen would be back to 145 against the dollar, "and lower, so fast it will make people's heads spin," he said, and this time it would be much harder to save since the United States had already stuck its neck out. Richard Jerram, chief economist at ING Barings, said Japan would probably take a month or so to draw up new policy and "as a result of that you are likely to see substantial volatility." "There is still that suspicion that they are not going to be aggressive," he warned. The yen and Asian markets were "obviously the most sensitive indicators to what comes out of this, and of course the domestic stock market and possibly the domestic bond market," he added. A bank bailout requiring massive public funds, whether it was 30 trillion yen or 50 trillion yen (219 billion dollars or 365 billion dollars) would be "clearly bad" for bond demand, Jerram warned. Barclays Capital economist Susumu Kato was more optimistic. A stable the yen was "urgent" for Asia, he said, and the G7 was expected to issue a statement supporting this week's joint US-Japan intervention, Kato said. Even the United States and the rest of the G7 would be hurt by any further dithering in Tokyo, Kato said, and the pressure now with US Deputy Treasury Secretary Lawrence Summers in town was such that Japan must act. "I think there will be some agreement between the United States and Japan to speed up restructuring and on a permanent income tax cut cut," the economist said. "Summers is here in Japan and the US can't lose the game, it is highly likely the US will take the initiative."