The dollar sank through 100 yen on Thursday for the first time in more than a decade, prompting Japanese officials to say they are keeping a close eye on their currency’s surge, which has driven stocks down sharply this year.
Japanese Finance Minister Fukushiro Nukaga tweaked his language to show a bit more concern, saying not only that he was carefully watching currencies but repeating that Group of Seven powers agree excessive exchange rate volatility is undesirable.
Japan Prime Minister Yasuo Fukuda also said rapid currency moves are undesirable, but analysts played down the risk of government intervention to stem the yen’s rise.
Nukaga said the dollar’s fall reflects the weakness of the U.S. currency rather than yen strength. Aggressive Federal Reserve interest rate cuts, along with fears of a deep U.S. economic recession, have undermined the dollar this year.
The remarks come as the benchmark Nikkei share average N225> , which has tumbled nearly 20 percent this year, struck a 2-1/2-year low.
The slide is greater than markets have suffered in the United States due to expected damage from a stronger yen to profits at Japan’s major exporters.
“The yen’s rise, a decline in the dollar, and rises in oil prices are beginning to have a negative effect on corporate profits,” Japanese Economics Minister Hiroko Ota said in parliament.
The dollar slid as low as 99.77 yen breaking below the 100 level for the first time since November 1995. So far this year that U.S. currency has tumbled 10 percent against the yen.
The yen’s jump was seen posing a further risk to Japanese companies. Futures on the Nikkei fell in Singapore trade while Japanese government bond futures climbed to match a 2-1/2-year high in evening trade
Currency strategists said they now expected the dollar to fall to 98 yen and possibly 95 yen in coming weeks.
But analysts said that Japan, which has a long history of intervening in currency markets to cap the yen, would be vary wary about returning to buying dollars after four-year break.
“If they intervene in the market, the market trend, upward trend in yen against dollar, would not change as long as the fundamentals don’t change,” said Taisuke Tanaka, but he warned of increasing political pressure to intervene.
Japan spent a whopping 35 trillion yen ($350 billion) in 2003 and the first quarter of 2004 to fight against the yen’s rise against the dollar.
In 1995, the dollar fell to an all-time low near 80 yen as the heated trade dispute between the Japan and the United States led to heightened pressure for a stronger yen. (Reuters)
