Dollar gains ground against yen, mark

June 19, 1993|By Bloomberg Business News

NEW YORK -- The dollar soared against major currencies yesterday, rallying against the Japanese yen after Prime Minister Kiichi Miyazawa lost a no-confidence vote among the country's legislators, forcing him to call elections or resign.

Gains against the yen and lingering concern about the slumping German economy helped send the dollar to 1.686 German marks, a 15-month high. The dollar rose 3.3 percent against the mark this week.

"Everything is lining up for the dollar all of a sudden," said Earl Johnson, foreign exchange adviser at Harris Trust & Savings Bank in Chicago. The U.S. economy has shown improvement recently, making the dollar a better bet than the mark or the yen, he said.

The dollar rallied to finish at 109.65 yen, up from 107.29 yen Thursday. It jumped more than two pfennigs against the mark, up from 1.6605 Thursday.

Traders dumped yen after legislators voted against Mr. Miyazawa for failing to pursue a clean-up of Japan's political system. Mr. Miyazawa's Liberal Democratic Party has held power since 1955, and jitters about its defeat were enough to send the yen tumbling. Mr. Miyazawa is expected to call an election in July.

"People are actively selling yen now," said John Nelson, chief foreign exchange dealer at Barclays Bank Plc in New York. Investors had been snapping up yen for months as it rallied to record strength against most major currencies. The yen jumped to a post-World War II high of 104.80 yen to the dollar on Tuesday. It traded around 125 yen to the dollar in January.

Yesterday's losses don't mean the yen is going to plummet, traders said. A swelling trade surplus fueled the yen's gains this year and that surplus still exists, said Dennis Pettit, foreign exchange manager at Long-Term Credit Bank of Japan.

Investors also will be wary of selling the yen before the meeting of leaders of the Group of Seven industrialized nations in Tokyo starting July 7. The yen could take off again if G-7 leaders fail to find a way to curb Japan's surplus, analysts said. The fact that Mr. Miyazawa will be a lame duck at the meeting will complicate any negotiations, traders said.

The dollar is more likely to rise against the mark in coming weeks, traders said. With the German economy on the ropes and unemployment rising, the country's central bank will be forced to cut interest rates to spur growth, traders said. Lower interest rates would make mark-denominated deposits less attractive, diminishing demand for the currency.

Elsewhere, the British pound fell to $1.497, from $1.515 late Thursday. The dollar jumped to 5.646 French francs, from 5.5823 francs, and rose to 1.501 Swiss francs, from 1.4825 francs Thursday. The dollar rose to 1,525 Italian lira, from 1,508 lira. It weakened against the Canadian dollar, slipping to C$1.2746, from $1.2768 Thursday.

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