Dollar Falls to Postwar Low Against Yen : Devaluation: The greenback, like the peso and the Canadian dollar, is being abandoned for stronger currencies.
Under a barrage of selling by traders worldwide, the dollar’s value plunged Thursday to a post-World War II low against the Japanese yen--joining the two other North American currencies in a renewed spiral of devaluation.
The greenback tumbled as low as 94.95 yen in New York, far below the previous nadir of 96.08 yen reached last Nov. 2. After the Federal Reserve Board intervened to buy dollars on behalf of the U.S. Treasury, the dollar rose to close at 95.26 yen, still down from 96.78 on Wednesday.
The dollar also fell sharply against the German mark, dropping from 1.462 marks on Wednesday to 1.442 at Thursday’s New York close, a 28-month low.
Although the dollar’s value has been declining off and on for 10 years against the yen and the mark, the latest slide has nonetheless set off alarm bells. Economists note that a weak dollar can potentially boost prices of imported goods, raising inflation. Also, because a falling dollar devalues U.S. assets held by foreigners it can discourage additional investment in the United States by those investors.
Traders said the latest dollar selloff was triggered as Japanese companies moved to repatriate money held in the United States, part of an annual effort to improve their balance sheets before the March 31 end of Japan’s fiscal year. That entails selling dollars and buying yen.
Currency dealers also cited as a concern a report by Japan’s Jiji news agency that quoted Federal Reserve Board member Lawrence Lindsey as saying the dollar-yen exchange rate wasn’t yet at “critical levels.” That suggested the Fed would not take action to defend the dollar--an open invitation for traders to knock it down.
However, in the first such support operation since Nov. 2-3, when the Fed spent $2.2 billion to defend the dollar, the central bank bought U.S. currency and sold yen and marks Thursday, traders said. The Treasury confirmed the action.
But “unless there’s a sustained follow-up by the Bank of Japan and European central banks, it’s not going to have much impact,” warned Ezra Zask, head of Ezra Zask Associates, a money management firm in Norfolk, Conn.
Once the dollar breached the previous record low against the yen--a key psychological barrier--institutional investors with big dollar holdings began to fear a free fall and rushed to sell in order to limit their losses. The dollar-yen drop then quickly escalated into a broad-based dollar selloff.
The stampede included “hedge” funds, or investment pools that cater to wealthy individuals, as well as mutual funds and others.
Although a weaker dollar has advantages for U.S. exporters--by automatically making their products cheaper overseas--economists note that such benefits can be offset if the dollar is perceived to be in an uncontrolled decline. That can upset financial markets and cause panic selling of dollar-denominated securities.
Analysts say the dollar has been primed for a selloff in recent weeks, as signs of a slowing U.S. economy have pushed interest rates lower. That makes some foreign investors hunt for better yields on bonds and other securities in Europe or elsewhere.
What’s more, the dollar is suffering from the same negative fundamentals that are pushing the Canadian dollar and Mexican peso lower, experts say: heavy government debt loads and-or large trade deficits, which raise investor concerns about the economies’ long-term health.
In place of North American currencies, some traders and investors are seeking out the yen and the mark because of the perception that those economies are more stable and that the currencies will better hold value in the long run.
