Dollar Sinks Further Amid Festering Trade Impasse : Markets Are Cool to Tokyo’s Bid to Prop Up U.S. Currency

Japan’s plan to dampen the yen’s soaring value against the dollar and keep the country’s economic recovery alive failed to convince the financial markets Friday.

The dollar finished lower against the yen in New York after Japan’s stimulus plan and an interest-rate cut failed to impress a holiday-thinned currency market.

In Tokyo, the dollar rose slightly following the 0.75 percentage point cut in the official discount rate to 1%, but traders said the cut had a limited effect since they had known it was coming.

The U.S. currency initially advanced in Asia after the Japanese government unveiled a spending package aimed at cutting Japan’s huge trade surplus--a major cause of the dollar’s weakness.

But sentiment soured as dealers scrutinized the plan, which had been much-hyped by Tokyo, and decided that it was simply an acceleration of previously announced measures that offered little help for the slumping dollar.

“If the Japanese government really wanted to help the situation, they would have made this move two weeks ago without so much fanfare,” said Callum Henderson, senior analyst at MMS International in New York.

“There was nothing in the plan that surprised the market,” added Guy Bouaziz, a trader in Englewood, N.J.

“Most of the movement in the dollar came before today in anticipation of the announcement.”

In New York, the dollar closed at 83.33 yen, down from 83.35 yen late Thursday. The dollar also was changing hands in New York at 1.391 German marks, up from 1.387.

In Tokyo, the U.S currency traded at 83.58 yen, up 0.36 yen from Thursday.

In late trading Friday in Europe, the dollar was quoted at 83.30 yen.

Trading was extremely quiet in the United States and Europe, where most financial markets were closed for Good Friday and Passover.

The yen has gained about 20% in value against the dollar so far this year, despite regular dollar-buying intervention by the Bank of Japan in a bid to temper the strength of the Japanese currency.

A high yen squeezes the profits of exporters and forces them to raise prices on their products, making them less competitive. Companies like Toyota and Sony say they lose millions of dollars each time the dollar falls one yen.

In cutting the discount rate, the Japanese central bank sought to dampen demand for yen by discouraging investment in Japan.

Lower interest rates make short-term investments less attractive by diminishing returns on deposits.

Still, the discount-rate cut is unlikely to help the dollar recover much from its long-term decline against the yen.

The slide is largely a result of Japan’s large and persistent trade surpluses, which give Japanese companies a steady supply of export-earned dollars that must be exchanged for yen.

The dollar was also weighed down Friday as the market awaited news from a weekend meeting of Asian finance ministers in Bali, Indonesia, at which Treasury Secretary Robert Rubin will represent the United States.

Analysts said the ministers likely would discuss exchange rates.

“The yen-dollar relationship will be addressed,” Bouaziz said. “The market wants to see what they plan on doing about it.”

Other late dollar rates in New York, compared to late Thursday: 1.151 Swiss francs, up from 1.145; 4.854 French francs, up from 4.834; 1,708 Italian lire, up from 1,706, and 1.369 Canadian dollars, down from 1.373.

The British pound was quoted at $1.604, down from $1.608.