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"Dollar hits 5-month high against yen in Tokyo" "Test of 110 yen level ahead as Japan may face recession"

By Bill Clifford, CBS MarketWatch Last Update: 11:26 AM ET Feb 8, 2000 NewsWatch World Markets

"TOKYO (CBS.MW) -- The dollar rose to a five-month high against the yen Tuesday, reflecting the stark contrast in U.S. and Japanese economic performance and a shift in capital flows, which have suddenly turned bearish on the Japanese currency."

"In New York trade, the yen traded at 109.48 to the dollar, its highest level since mid-September and gaining more than 8 yen since the 101.40 level on Jan. 4, when Japanese authorities last intervened in the currency markets."

"Many market participants and observers said an exchange rate of 110 yen to the dollar will prevail by the end of the week. And in an interview published Tuesday in the Nikkei Financial Daily, the man who earned the nickname of "Mr. Yen" urged the Japanese government to intervene again to push the dollar above 110 yen, just to be sure the yen won't regain the strength to re-test 100 yen."

"It's better to have a cushion of more than 10 yen to prevent the yen from appreciating to double-digit figures," Eisuke Sakakibara, former vice finance minister for international affairs, was quoted as saying."

"Right now, "fundamental" forces seem to be favoring a weaker yen. The U.S. super-economy in the final three months of 1999 grew 5.8 percent on an annualized basis, and it has just marked an unprecedented 107 consecutive months of expansion."

"Japan once again appears to be headed in the opposite direction. A top economic official warned over the weekend that an "unexpectedly bad" drop in fourth-quarter consumer spending would trigger "a minus figure" for Japan's GDP in the October-December period. Many private economists agree with that assessment."

"So after the world's No. 2 economy grew in the first half of 1999 -- to break a streak of five straight quarters of contraction -- it now looks as if GDP in the final two quarters of last year will be negative. Among economists, that's known as recession."

"What good economic news there is in Japan these days, tends to be narrowly focused. For example, Japan's domestic personal computer shipments for the three months through December rose 30 percent to 2.41 million units. In value terms, total domestic shipments of all types of computers and peripheral equipment increased 25 percent to 613.3 billion yen ($5.6 billion), the Japan Electronic Industry Development Association reported Tuesday."

Japanese households spend less and less

"But overall spending by Japanese households continues to fall. Data just released by the government show household spending dropped 4.0 percent in real terms in December from a year earlier, after declining 2.9 percent in November. Spending by wage earners fell 4.7 percent in December; the month before breadwinners spent 2.4 percent less than they had in November 1998."

"Japan's economy is not doing as well as people thought," says Larry Duke, head of Citibank's global markets strategy group in Tokyo. "People got over-optimistic, and the market was getting ahead of itself."

"Duke thinks the yen will fall a little further, "to 110 or even 112" to the dollar. Foreign investors profited not only from the 37-percent rise in Japanese equities last year, but also from yen appreciation as they convert gains they've booked back into dollars and other currencies. They placed net sell orders for Japanese stocks Tuesday morning."

"When the new fiscal year begins in April," says Duke, "you'll see fund managers coming back into Japanese equities."

"Michiko Fukuda, manager of foreign exchange sales at National Australia Bank, agrees that the dollar's upside is limited even the breach of 110 yen occurs."

"I think we'll see 110.60 or 111 pretty soon, but not much higher than that" she says. "Already some Japanese technology exporters are selling dollars and placing orders for 12-month contracts at 100-105 yen. Nobody would have offered them that contract at the beginning of the year, but obviously the tech companies sense that's a realistic long-term exchange rate."

"But some currency market participants noted that even if exporters have begun hedging, other Japanese accounts -- trust banks in particular -- decided it was time to join foreign institutions on the dollar-buying bandwagon."

"Fukuda believes things may turn brighter for the economy, especially if the stock market holds up. With some 10 trillion yen ($91.7 billion) in postal-savings deposits maturing over the next three months, "some Japanese may roll the accounts over, but others are ready to try to earn a higher return in the stock market and some will buy cars or computers."

"Market players in Tokyo are turning their focus to Thursday's release of Japanese machinery-orders data. "The key data in this report will be the Economic Planning Agency's forecast for machine orders for the January-March quarter, which we believe will be up by 2.7% from the previous quarter," said Ken Landon, currency strategist for Deutsche Bank. "That would be the second quarterly gain and a good indicator of a pick up in capital spending in fiscal 2000."

-- Deb M. (vmcclell@columbus.rr.com), February 08, 2000

Answers

Gotta love the press. I thought Japan had been in a recession for years, made worse by their following US advice to increase .gov spending like we do in a slump?

-- Hokie (Hokie_@hotmail.com), February 08, 2000.

Here's another article where the Tokyo's governor is considering adding a tax to major banks - looks like they're hurting for money...I wonder if they'll start withdrawing foreign assets next?

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"Japan's banks fall on tax proposal Scoot climbs; telecom shares mixed"

By Mariko Ando and Barbara Kollmeyer, CBS MarketWatch

"TOKYO (CBS.MW) -- Shares of Japan's leading banks fell following the news that the Tokyo's governor is considering to set a 3-percent tax on major banks."

"-- Shares of Sakura Bank Ltd. (SAKUY: news, msgs) dropped 37 yen, or 6.0 percent, to 650 yen. Japan's banking shares fell 2.88 percent as a sector. Tokyo metropolitan Governor Shintaro Ishihara proposed a new local tax plan which could involve a 3-percent tax for five years on the gross business profits of financial institutions operating in Tokyo."

"-- Shares of Bank of Tokyo-Mitsubishi Ltd. (MBK: news, msgs) dropped 42 yen, or 3.0 percent, to 1,381."

"-- Shares of Sony Corp. (SNE: news, msgs) fell 370 yen, or 1.2 percent, to 29,610, after briefly topping 30,000 yen in the early morning for the first time in five weeks."

-- Deb M. (vmcclell@columbus.rr.com), February 08, 2000.

Hokie,

Well, if they weren't in a recession before, they sure will be soon, huh...

-- Deb M. (vmcclell@columbus.rr.com), February 08, 2000.

DEB, I think you should go back to your palaver about that dope Dennis Olson. You don't know diddly about economics.

-- (You@re.morons), February 08, 2000.

No doubt Deb!

-- Hokie (Hokie_@hotmail.com), February 08, 2000.