Japan struggling to WEAKEN its currency

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09/24 10:06 Yen Falls Against Dollar After Bank of Japan Sells Currency By Geraldine Ryerson-Cruz

New York, Sept. 24 (Bloomberg) -- The yen fell against the dollar and the euro after Japan sold its currency for the fourth day in a week to prevent gains from crimping exports and worsening the nation's economic slowdown.

Japan's currency weakened to 117.34 yen per dollar following the Bank of Japan sales, after strengthening as far as 116.32 earlier and from 116.58 late Friday in New York.

``The BOJ has shown that below the 117 (yen per dollar) level, they're not happy with the yen's strength and the likelihood for more action there is quite strong,'' said Robert Lynch, a currency strategist at BNP Paribas.

The yen extended its decline after the European Central Bank sold yen for euros. It weakened to 107.50 yen per euro from 106.66 Friday and from 106.26 in earlier trading. The euro traded at 91.61 U.S. cents, lower than 91.49 Friday though stronger than 91.92 earlier today.

Japan's central bank last bought dollars Friday, after the yen strengthened to 115.90. It sold yen on Sept. 17, at about 116.65, and Wednesday at about 117.10. The yen had gained as much as 5 percent against the dollar since terrorist attacks on New York and the Pentagon Sept. 11.

``It's just another reminder to the market that Japan won't let the yen rise go unchecked,'' said Steve Englander, senior currency strategist at Citibank in London. Financial markets in Japan were closed for a holiday.

Japan has few options besides weakening the currency to steer the world's No. 2 economy away from recession. Interest rates are already near zero, and government spending is constrained by debt amounting to about 130 percent of gross domestic product.

Japan's output shrank 0.8 percent in the April-to-June quarter, and economists expect it to contract in the three months through September, which would meet one definition of a recession.

`Appropriate Action'

``We took appropriate action in the exchange market,'' said Haruhiko Kuroda, Japan's vice finance minister of international affairs, in a statement his office read over the telephone. ``We will continue to closely monitor the market.''

The dollar slipped against the euro, and may extend declines as investors switch out of U.S. assets amid concern the terrorist attacks will lead to war and undermine economic growth.

``Risk-aversion is increasing, and the dollar will depreciate,'' said Jonathan Hoffman, director of fixed-income strategy at Lombard Odier Holdings in London, which manages about $25 billion. ``If the U.S. gets embroiled in a messy conflict,'' that will hurt the dollar.

Such concern may prompt investors to seek safety in assets outside the U.S., analysts said. Demand for dollars was hurt last week, when the Dow Jones Industrial Average posted its largest percentage drop since 1933.

Declining Confidence

Demand for dollar-denominated investments may dwindle further if consumers show signs of cutting back spending. The Conference Board index of consumer confidence, slated for release tomorrow, probably will drop to 105.0, the lowest since June 1996, from 114.3 in August, according to economists polled by Bloomberg.

``This will weigh heavily on the dollar,'' said Jan Amrit Poser, head of foreign-exchange research at Bank Sarasin & Cie in Zurich.

A rebound in stocks, however, might offset the drop in confidence, however, said Benjamin Strauss, a trader at Julius Baer. ``The more of a bounce there is in U.S. stocks, the less people will be looking to the Swiss franc and the yen as havens.''

The U.S. probably entered a recession during the current quarter, dragging down world economic growth, according to the London-based Centre for Economics and Business Research.

The world's biggest economy probably will shrink at a 2.9 percent annual rate in the three months ending Sept. 30 and by 1.6 percent in the fourth quarter, the group said.



-- Guy Daley (guydaley1@netzero.net), September 24, 2001


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