Dollar Firms, Market Keeps Eye On G7 (and Y2K)

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Man would I like to be a fly on the wall at this one. Imagine leaders from the most powerful nations on earth all gathered into one room for a game of chess. Winner get's to keep their job, face and economy intact. The eleventh our is approaching on a known financial disruption and the endgames have already begun. Keep your eyes open on this one as it has definite market and endgame implications for us.

Although they don't mention Y2K in this article, it is a safe bet that it will be at the forefront for all who attend.

Friday September 24 6:12 PM ET

Dollar Firms, Market Keeps Eye On G7 Full Coverage U.S. Economy By Elizabeth Lazarowitz

NEW YORK (Reuters) - The Japanese yen eased Friday after a week of nearly relentless gains against the dollar, but the yen seemed poised to surge again as dealers waited out a weekend meeting of officials from the Group of Seven big industrial nations.

The greenback paced in narrow ranges in somnolent New York trade after concern that G7 finance ministers and central bankers might hammer out an international deal to tame the yen largely evaporated.

``We're waiting for the big event,'' said Tomoko Iwakawa, vice president and foreign exchange corporate advisor at Union Bank of California.

``The majority of the market is feeling that nothing dramatic is going to happen, and therefore they're almost ready to test the downside of dollar/yen,'' Iwakawa added.

Renewed speculation that the G7 might launch a coordinated effort to dampen the yen, which has risen 15 percent this summer, had propelled the dollar up around one yen overnight.

In late U.S. trading, the dollar stood at 104.12/22 yen, little more than a yen above 3-1/2 year lows hit last week. The greenback had softened from early U.S. trading levels near 104.62/72, but traded well above 103.83/91 late Thursday.

Despite suspicion joint intervention is not in the cards, traders preferred to take profits and square positions to avoid being caught off guard by any unexpected international moves.

Slumping Japanese stocks, hit by Thursday's declines on Wall Street and jawboning by Japanese officials, had contributed to the yen-negative tone.

But the dollar gave up around half of its overnight gains in a slow-going session in New York amid skepticism that any concrete measures would emerge over the weekend that would launch the dollar sharply higher.

Washington, which is less concerned about the yen given the dollar's stability against other major currencies, has not shown any enthusiasm for concerted market intervention.

Officials from Japan and Europe cast further doubt on that probability in remarks to the press as they arrived in Washington for the G7 meeting.

Japanese Finance Minister Kiichi Miyazawa was quoted by Japan's Jiji news agency as saying ``it was not so easy'' for Japan to propose a measure to stabilize forex markets and economic talks with U.S. officials would be tough.

Later, European Central Bank Chief Economist Otmar Issing said the recent rise of the yen was not a concern and he expected improvement in the euro in the long term.

And another bad day for U.S. stocks, with the Dow Jones industrial average shedding more than 40 points, may have upped the ante on possible joint intervention, some dealers said.

Traders said a sharp Wall Street selloff could shunt the dollar toward 103.20 yen, the 3-1/2 year low hit last week.

Miyazawa and Bank of Japan Governor Masaru Hayami are scheduled to meet their U.S. counterparts, Treasury Secretary Lawrence Summers and Federal Reserve Chairman Alan Greenspan, Saturday for private talks ahead of the G7 gathering.

With the market's attention pinned on the dollar versus the yen, the European single currency was relegated to the sidelines, traders said.

The dollar eked out fractional gains against the euro, with the euro trading. The euro stood at $1.0440/45 in late U.S. trading against $1.0476/81 early in New York and $1.0496/01 late Thursday.

The dollar's gains against the euro gave it a minor lift against the British pound, after sterling touched new six-month highs against the greenback overnight.

The pound traded at $1.6413/23 in New York against $1.6441/51 in the morning and $1.6439/49 late Thursday.

The dollar rose to 1.5330/40 Swiss francs from 1.5270/80 francs in the New York morning and 1.5254/64 Thursday.

The Australian dollar was unchanged from early U.S. trading at $0.6502/09 against $0.6483/93 late Thursday.

The Canadian dollar slipped to C$1.4717/27 from C$1.4731/41 in early U.S. trading and C$1.4720/30 late Thursday.



-- Gordon (g_gecko_69@hotmail.com), September 25, 1999

Answers

Thanks for your intelligent postings. I feel I am getting a further financial education. I took real early retirement and am consulting to add to savings. My asset allocation is very conservative right now because of the issues you bring up. The world is a very small place. Between the market valuations (Look what Steve Ballmer's comments did to the Nasdaq), the problems with the dollar/yen ratios and oil, we are in for a ride.

I would scrub floors or become a pet sitter before I go back into the Silicon Valley schtik. Any guesses for how long it will take for the pendulum to swing back to mid range?

-- Nancy (wellsnl@hotmail.com), September 25, 1999.


Would I bet on the yen with all I've read of their Y2K problems? No...

-- Mara Wayne (MaraWayne@aol.com), September 25, 1999.

Mara,

It really doesn't matter if you or I bet on the Yen. However if the currency players continue to bet against the dollar it will matter a great deal. Your point is well taken. I believe the Japanese "recovery" has happened far to fast to be real. And as far as their Y2K remediation goes, late start = late finish. To bad for them. That will be then, this is now.

Like I said, it's a chess game. Unfortunately you and I don't get to even watch the game up close despite the fact that it's ramifications will be quite serious for us.

-- Gordon (g_gecko_69@hotmail.com), September 25, 1999.


"Major industrial nations agree a strong yen is a problem for the fragile Japanese economy..."

Interesting slant on painting this as Japan's problem only. Me thinks the Japanese have positioned themselves well in the endgame. They appear to be the "victims" of "runaway growth" in thier economy. Funny as I recall they were all but bankrupt a year or two ago.

This should read ...Major institutional investors agree that if they get thier ass handed to them by investing in dollar denominated investments, which seem overinflated to start with, that they should trash the US stock market until it reaches reasonable levels.

"Japan would like the support of its G7 partners in its battle to tame the high flying yen."

Yeah, right, battle. Damn the fighting has been fierce. The Japs have stepped in at least twice halfheartedly in the last two months. I'm not sure how they can even hear themselves think with the din of their fierce battle ringing in their ears.

For educational purposes Saturday September 25 4:38 PM ET

Yen Center Of Attention As G7 Meets By Vittorio Alessio

WASHINGTON (Reuters) - Major industrial nations agree a strong yen is a problem for the fragile Japanese economy, but will leave it to Tokyo to pump more money into the system to prop up growth and lower the currency's value, a financial official said Saturday.

``There is consensus on the fact that yen strength is a problem,'' the Italian Treasury official told reporters as Group of Seven finance ministers and central bankers met Saturday to discuss the yen and the dangers its recent strength poses for Japan's nascent economic recovery.

The financial leaders were also to discuss aid to poor nations as the world's economic outlook begins to brighten. Russia's economic problems and allegations of widespread corruption and money laundering were also expected to top the agenda.

FINANCIAL MARKETS NERVOUSLY AWAIT OUTCOME

Financial market attention was riveted on the outcome of talks on the yen, which has risen about 14 percent against the dollar since early July. The gain has been large enough to spark fears it could make Japanese exports too expensive and throw Japan's recovery off track.

The officials -- from Britain, Canada, France, Germany, Italy, Japan and the United States -- signaled that the yen would be prominent on their agenda in advance of the talks, taking place on the sidelines of the World Bank and IMF annual meetings.

Japan would like the support of its G7 partners in its battle to tame the high flying yen. But the United States has been reticent about the idea of joint intervention in currency markets and wanted Tokyo to go further to reflate its economy and boost domestic demand.

COMMON VOICE SOUGHT FROM JAPAN

Tokyo's G7 partners would like the Ministry of Finance and Bank of Japan to settle their differences over the issue of injecting more money into the economy. The Bank of Japan said last Tuesday that it was not going to inject more liquidity into the economy.

In a measure of the tension between Tokyo and Washington on the issue, the U.S. Treasury followed up a bilateral meeting with Japan with an unusually brief statement describing the talks as ``a good, full discussion.''

Later during a photo session shortly after the gathering of financial leaders got underway, Japanese Finance Minister Kiichi Miyazawa was asked by a reporter if his counterparts in the G7 talks had ``beaten you up.''

``I've survived,'' Miyazawa replied.

The G7 partners were also expected to urge the United States to do more to boost savings and curb its seemingly insatiable appetite for foreign goods. A string of record trade deficits has unnerved financial markets and helped fuel the rise in the yen.

They were also expected to express pleasure at improved economic growth in Europe but also stress a need to undertake more structural reforms in their economies.

RUSSIAN PROBLEMS ON AGENDA

Russia, which will take part in only a brief part of the half-day talks, is expected to face demands that it put its economy in order by stamping out corruption, improving tax collection and undertaking further economic reform if it wants to continue to receive western aid.

Although it does not feature on the official agenda, the talks will also touch on embarrassing allegations of money laundering involving the Bank of New York and other U.S. banks. The scandal has raised questions about the fate of International Monetary Fund (IMF) loans to the Russia.

The group also was expected to pave the way for a deal to be agreed upon in the International Monetary Fund which will provide cash for aid to the world's poorest countries by dint of a complex scheme to revalue 14 million ounces of IMF gold.

Full approval for this deal is expected to emerge in international meetings over the next few days.



-- Gordon (g_gecko_69@hotmail.com), September 25, 1999.


Looks like the winner of this round is Japan. The CNN gang is saying that the meeting went well blah, blah blah. I wouldn't expect them to come out and say "We're gonna intervene hard. Take us to the mat because we're giving you advance warning". But, I do think that this outcome was a forgone conclusion. After all if BOJ doesn't want to intervene they don't have to. The bubble heads don't seem to understand that if "a strong dollar is good for the US economy" it stands to reason that a "weak dollar is bad for the US economy".

Watch this one for Monday's open. My guess is that we've not seen the worst the market has to offer by a long shot.

For educational and financial preservation purposes only:

USDJPY=X 1 3:12AM 103.9000 103.90

Alert: G7 Statement Makes No Mention of Any Intervention to Cap Yen Rise (Reuters) - Sep 25 6:15 PM EDT

Saturday September 25 6:35 PM ET G7 Says Concerned About Rising Yen

WASHINGTON (Reuters) - Finance ministers and central bankers from the Group of Seven industrial nations Saturday expressed concern about the effects of a rising yen on world growth, adding that Japan had agreed to implement fresh stimulus measures to boost its economy.

In a statement released after their meeting, the G7 said Japan had pledged to inject more money into its economy, which should help cap the yen's recent rise. But they gave no indication that they are willing to support Tokyo's recent efforts to rein in the yen by selling it on the open market.

Saturday September 25 6:41 PM ET

G7 Says Concerned About Rising Yen

WASHINGTON (Reuters) - Finance ministers and central bankers from the Group of Seven industrial nations Saturday expressed concern about the effects of a rising yen on world growth, adding that Japan had agreed to implement fresh stimulus measures to boost its economy.

In a statement released after their meeting, the G7 said Japan had pledged to inject more money into its economy, which should help cap the yen's recent rise. But they gave no indication that they are willing to support Tokyo's recent efforts to rein in the yen by selling it on the open market.

``We shared Japan's concern about the potential impact of the yen's appreciation for the Japanese economy and the world economy,'' the statement said.

Japanese authorities had pledged to ``implement stimulus measures until domestic demand-led growth is solidly in place and, in the context of their zero interest rate policy, to provide ample liquidity until deflationary concerns are dispelled,'' the G7 added.

Their statement appeared to shatter any hopes Japanese officials may have had of securing the help of their G7 colleagues for putting a lid on the yen's strength, which they fear could undermine a frail recovery in the world's number two economy.

The G7 statement -- which in large parts reflected language recently used by U.S. officials -- also said economic prospects for major industrial nations had improved. But it added that ''we still face a number of challenges'' to make the world economy a better and more stable place.

-- Gordon (g_gecko_69@hotmail.com), September 25, 1999.



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