Yen's Wild Rally Sets Off Alarms In Japan . . .
Bloomberg Business News
TOKYO - For the already-wobbly Japanese economy, the yen's stunning rally this week against the dollar is something close to a knock-out blow.
In another wild trading day in Tokyo, the dollar went into a virtual free-fall against the yen today. At one point, the currency hit another postwar high of 101.80 yen to the dollar, dangerously close to the psychologically important 100-yen mark that would cap a stunning year for the yen.
Persistent dollar-buying by the Bank of Japan cooled the soaring currency to 102.44 yen to the dollar near the close of Tokyo trading. Yet "the Bank of Japan is the only buyer at this point," explained Seiichiro Takahashi, chief foreign-exchange dealer at Sumitomo Bank.
The yen's sudden burst this week, following a string of distressing economic indicators, clearly has set off alarm bells within the new coalition government of Japanese Prime Minister Mirohiro Hosokawa.
Today, Japan's new Finance Minister Hirohisa Fujii said the economy hasn't bottomed out yet. And yesterday Hosokawa expressed "grave concern" about the yen's speedy rise.
Economists already are betting this year's yen shock - up 18 percent against the dollar, 22 percent vs. the deutsche mark and 25 percent compared with the French franc - will guarantee that corporate Japan will post its fourth consecutive year-on-year drop in profits.
Corporate earnings are expected to fall 10 percent this fiscal year ending March 1994, according to S.G. Warburg economist Jesper Koll. If so, Hosokawa will have to consider whipping up yet another economic stimulus package to light a fire under the economy.
What's more, currency speculators aren't likely to cut Hosokawa much slack unless his government comes up with a credible plan to cut the nation's head-turning global trade surplus, expected to hit $130 billion this year.
That's a tall order. Assuming Japan's financial bureaucrats were game, it will take years before the country's comparatively closed markets will be opened to foreign competition. Meanwhile, Hosokawa seems to be waffling about instituting the kind of big income tax cut that will get Japanese consumers buying more foreign goods.
That's why a majority of currency analysts see the yen crashing below the 100 yen mark in the coming weeks.
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