Japanese currency declines to 32-month low versus dollar

December 06, 2005|By NEW YORK TIMES NEWS SERVICE

TOKYO -- The Japanese yen fell to a 32-month low against the dollar yesterday, continuing an almost yearlong slide that helps Japanese exporters but raises pressure on U.S. producers.

In Tokyo, the yen traded as low as 121.39 yen to the dollar, its weakest point since March 2003. It has fallen 16 percent this year, from a high of 101.68 yen to the dollar Jan. 17. Against the euro, the yen touched a record low of 141.98.

In New York, the yen weakened further to lows of 121.40 to the dollar, recovering to settle at 120.79.

Analysts said the yen has fallen as Japanese investors, particularly individuals, shift money into foreign securities to get higher returns from rising interest rates in the United States and, recently, Europe.

To make such investments, Japanese investors must buy dollars and euros by selling yen, driving down the Japanese currency's value.

Still, analysts said it was surprising the yen had dipped so much, given the underlying strength of the improving Japanese economy, which is looking its healthiest since the early 1990s.

Often, declines in a nation's currency reflect problems such as excessive government debt or faltering growth. But in this case, analysts say, the yen's weakness reflects something different: As economic recovery raises wages and creates jobs, the Japanese are starting to feel confident enough to invest part of their savings abroad for the first time in a decade.

And even a small change in Japanese investing habits can be enough to move global markets. Japanese households hold some $12 trillion in financial assets, one of the world's largest pools of investment capital.

"With the domestic economy getting back onto a normal footing," said Satoru Ogasawara, a currency strategist in the Tokyo office of Credit Suisse First Boston, "individuals are becoming less afraid of risk."

A lower yen helps Japanese car and electronics exporters because it makes their goods cheaper in dollars. While that might be good news for consumers in the United States, the prospect of less expensive Toyotas threatens Detroit, which is struggling to compete with the Japanese.

In the past, U.S. manufacturers have asked Washington to intervene to halt slides in the yen. But at a weekend meeting of finance ministers of the Group of Seven industrial nations in London, Treasury Secretary John W. Snow made no public mention of the yen's decline, said news reports. Japan's finance minister, Sadakazu Tanigaki, said the yen did not come up in talks with Snow.

"Foreign exchange rates reflect fundamentals of economies," Tanigaki said, according to Bloomberg News.

Without U.S. pressure, Japan is unlikely to intervene as its economy only benefits from stronger exports.

A catalyst for the yen's decline has been a steady ratcheting up of interest rates by the Federal Reserve, which has made U.S. Treasury bonds more attractive to investors.

To limit inflation in a robust U.S. economy, the Fed has raised its base-line federal funds rate, the rate at which banks lend money to each other, 12 times since June 2004, to 4 percent from 1 percent. Last week, the European Central Bank increased rates for the first time in five years.

At the same time, Japan's central bank has kept interest rates effectively near zero, and fears of snuffing out economic recovery make it unlikely the bank will raise them soon. That has sent Japanese money overseas in search of higher returns. In the past two years, savings have been shifting slowly into more aggressive investments, particularly Japanese-based mutual funds that specialize in U.S. and other foreign securities.

Japanese purchases of foreign securities surpassed 15 trillion yen, or $124 billion, in the first eight months of this year, according to government data, At that pace, purchases would pass $165 billion for the first time since 1986, analysts say.

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