Japan’s Political Woes Drive the Dollar Down

The dollar fell against the Japanese yen and the German mark Wednesday, as German short-term interest rates were cut and political gridlock continued in Japan.

Scott Gallopo, chief dealer at Chemical Bank, said the dollar’s slump against the yen may have to continue before intervention occurs. The U.S. currency has been trading at the low end of a narrow range against the yen for a month.

“If the dollar gets down near the 100-yen level, then I think we’ll see the G-7 nations coming in to break the dollar’s fall,” he said, referring to the Group of Seven, the world’s largest industrial nations.

The dollar was again stymied by Japan’s uncertain political situation.

New Prime Minister Tsutomu Hata is facing the prospect of ruling without a majority in Parliament. The United States has been pressing Japan to open its markets to help narrow the trade gap between the two nations, but talks between the two countries are stalled and unlikely to resume until the Japanese government is more secure.

If trade talks fail completely, many traders think the Clinton Administration will support a higher yen.

In New York, the dollar fell to 102.30 yen, down from Tuesday’s 102.83.

The dollar also slipped against the German mark after the Bundesbank lowered its repurchase rate 0.11 percentage points to 5.47%. The rate is charged to banks that borrow from the central bank.

The dollar closed at 1.672 German marks in New York, down from 1.676 on Tuesday. Earlier in Europe, the dollar fell to 1.671 marks from 1.680.

A drop in foreign rates usually strengthens the greenback because it makes U.S. investments, which are bought with dollars, more attractive.

Meanwhile, foreign stock markets closed generally higher.

Mexico’s Bolsa index rallied after Mexican short-term interest rates declined for the first time in a month. The IPC index closed up 48.65 points, or 2.13%, at 2,332.78.

German share prices closed off the day’s highs but higher than the previous day, as DAX futures prices bounced off lows and demand for Daimler and chemical stocks propped up the market. The DAX-30 index ended at 2,253.57, up 10.37 points.

Tokyo stocks also ended firmer on index-linked buying by investment trusts just before the close, although the rise was exaggerated by very thin volume. The Nikkei 225-share average closed up 100.22 points at 19,729.15.

London shares firmed, with the Financial Times 100-share average closing up 24.7 points at 3,150.0.