Dollar Drops Below 80 Yen; T-Bills Ease : Markets: Currency sinks to new postwar low in Tokyo before central bank steps in. Short-term yields fall on economic outlook.
Currency traders mocked the latest government efforts to stop the dollar’s plunge, sending the beleaguered buck below 80 yen early today in Tokyo for the first time.
Meanwhile, yields on short-term U.S. Treasury bills continued to slide to their lowest levels since last fall, in part reflecting a weakening economy--and many investors’ certainty that the Federal Reserve Board won’t raise rates to defend the dollar.
On Wall Street on Tuesday, stocks mostly struggled through an active session, and major indexes closed modestly lower. The Dow industrial average eased 16.25 points to 4,179.13.
Early today in Tokyo, the dollar sank as low as 79.75 yen, a post-World War II low that eclipsed the previous record intraday low of 80.15 set 10 days ago.
The latest decline, which coincided with President Clinton’s news conference Tuesday evening in Washington, was halted in late morning as the Bank of Japan intervened to buy dollars and as traders mulled Clinton’s declaration that although he wants a stronger dollar, he isn’t sure what governments can do about currency movements in the short run.
The dollar was trading at 80.20 yen in late-morning trading in Tokyo today.
The Tokyo selloff followed a sharp dollar decline in New York after U.S. and Japanese officials used strong words in describing the state of trade talks and after the U.S. government reported that the pace of home building slumped to a two-year low in March as construction dropped for a third straight month.
With each new sign of slowing economic growth, investors have become more convinced that the Fed is finished raising short-term interest rates--and that the central bank may in fact be approaching a point at which it may consider cutting rates.
Because many economists who favor a stronger dollar have suggested that the currency could be stabilized with more attractive U.S. interest rates, the fading prospects for higher rates are making currency traders even gloomier about the dollar’s future.
The dollar had slumped to 80.63 yen in New York on Tuesday, down from 82.05 on Monday. It also fell to 1.354 German marks, down from 1.367.
With the dollar’s slow-motion meltdown continuing, the head of the International Monetary Fund on Tuesday stepped up his campaign to persuade U.S. policy-makers that interest rates need to be raised to defend the currency.
“We are very concerned about the decline of the dollar,” IMF Managing Director Michel Camdessus said. “A country which is responsible for the key reserve currency of the world has a responsibility for maintaining the reasonable stability of it.”
He repeated his request made last Friday that the Fed raise short-term interest rates, in tandem with the decision by Japan’s central bank to cut short-term rates there to record lows--a step taken Friday as part of Japan’s efforts to halt the yen’s rise.
But U.S. money market rate trends on Tuesday showed that investors don’t believe the Fed will act to boost rates. Yields on three- and six-month Treasury bills, which fell to five-month lows at Monday’s auction, slipped again Tuesday. The yield on six-month bills closed at 5.96%, down from 6.15% as recently as April 4 and the lowest since November.
“The Fed is on hold for a while because we’ve seen three months of soft economic figures,” said Colleen Ambrose, manager at Harris Investment Management in Chicago.
In addition, the resilience of short-term Treasuries is also due at least in part to purchases of notes and bills by central banks around the world in a so far futile effort to support the dollar.
Meanwhile, longer-term U.S. bond yields edged up Tuesday, reflecting worries that the anemic dollar will drive up prices on imported goods and that the U.S. and Japan could be headed for a serious trade war.
Both sides said their current trade talks, aimed at opening Japan’s markets wider to imports, are in a difficult stage.
The yield on the 30-year Treasury bond rose to 7.39% from 7.37% on Monday.
Bonds were also pressured by rising oil, gold and silver prices--traditional harbingers of higher inflation. Silver futures for May rose 14 cents to $5.87 an ounce on the Comex, the highest since 1989.
But the U.S. stock market, while weak, mostly brushed off the latest dollar tumble. Major indexes were off only marginally, though losers topped winners by 12 to 10 on the New York Stock Exchange in active trading.
Analysts said many investors so far remain fixated on first-quarter earnings reports and that gains in stocks of companies posting healthy results are largely offsetting the disappointments.
Johnson & Johnson, for example, surged 2 1/8 to 62 5/8 after reporting results well ahead of expectations. Other winners on earnings news included Texas Instruments, up 1 5/8 to 93 5/8; Sun Microsystems, up 1 5/16 to 37 3/4; Wells Fargo, up 7 to 167, and Mattel, up 1/4 to 23 5/8.
On the downside, stocks falling on earnings disappointments included Rubbermaid, down 3 1/8 to 29 1/2; Cooper Tire, down 3 to 23 1/2, and Reebok, down 2 3/4 to 34.
Market Roundup, D6
