Dollar Close to 8-Year High Against Yen
The dollar rose against the yen today, approaching its eight-year high, amid talk that officials won’t take steps to keep the yen from falling as Japan’s economy languishes in recession.
Last week, Japanese Finance Minister Kiichi Miyazawa said economic performance, not market manipulation by governments, should determine the yen’s value. That sent a signal Japan won’t sell dollars to prop up the yen or ask other countries to do so.
That, combined with a report Friday showing Japan’s unemployment rate rose to a postwar record in June, raised concern that an economic turnaround isn’t in the offing soon, which soured many traders on the yen.
“Japan’s new leaders face a steep task” in turning the economy around, said J.P. Neergaard, manager of foreign exchange at Den Danske Bank. “I wouldn’t be surprised if the dollar revisits its recent eight-year high.”
Today, the dollar hovered around 145 yen after gaining 2% against the yen on Friday, when it ended the day at 144.67 yen, up from 143.82 yen late Thursday.
Neergaard said that this week, the dollar could go as high as 146.78 yen, the peak it reached June 16, the day before the U.S. and Japan sold dollars to prop up the yen.
Miyazawa’s remarks reduced speculation that the U.S. and Japan will sell dollars again any time soon. With Japan’s economy mired in its worst recession in 50 years and its interest rates at record lows, if central banks won’t defend the currency, there’s little reason to buy yen, traders and investors said.
The economy contracted 0.7% in the year ended March 31. The Bank of Japan has kept its bellwether discount rate at 0.5% since September 1995. An investor earns 5.36% on one-year U.S. bills, compared with 0.48% on Japan’s one-year bills.
Still, some investors and traders say they’re optimistic about the new government’s resolve to clean up the bad-loan crisis that’s making it harder for Japan’s banks to lend money and eroding confidence in the financial system.
Miyazawa said he will accelerate efforts during the two-month session of Parliament, which began Thursday, to pass laws to help banks get rid of bad loans. He also said he’ll meet with members of the ruling Liberal Democratic Party’s tax panel this week to discuss proposed tax cuts--sooner than many traders expected.
“We think Japan is beginning to turn the corner,” said Sykes Wilford, who helps manage $6.3 billion in assets at CDC Investment Management and has been buying Japanese stocks over the last couple of months.
“Now that there’s a recognition” among politicians of the urgency of Japan’s problems, Wilford said, “we can begin to see a set of policies that make sense. And that begins with healing the banking system.”
