Yen's rally fades


The Japanese currency has been on a three-month slide against the dollar, a drop that is now making its way through Asia

By staff and wire reports

TOKYO, Japan -- The yen's brief rally against the U.S. dollar faded Friday afternoon, with the currency stuck at about 131.4 on expectations that Japanese officials will keep talking it down.

After 11 straight days of decline and a record three-year low of 132.08 on Thursday, the yen was stronger on Friday morning, going below the 131 level.

But it weakened in afternoon trade.

Economics Minister Heizo Takenaka spurred yen selling when he again suggested Japanese officials are warm to a weaker currency.

"Basically, the yen rate is not misaligned with economic fundamentals," Takenaka said at a news conference.

But the yen has been on a three-month run. Its drop in value is likely to boost Japanese trade, by making exports cheaper.

And it has been heaping pressure on other Asian currencies, and Asian competitors of Japanese companies.

Japanese goods see 15% sale

This year alone, Japanese products are 15 percent cheaper, purely as a result of the yen's decline. It was trading at 114.45 to the dollar at the start of 2001.

The city-state's economy relies on exports, particularly of technology and electronics. Its companies were already struggling through a sharp recession, and now have to contend with increased pressure from Japanese competitors.

South Korean companies are likely to suffer most directly. Of Asia's biggest economies, South Korea and China send the most products to Japan. But China has stronger domestic demand.

Korean makers of cars, electronics, steel and ships go head-to-head with Japanese companies. Exporters in those industries have been dropping their profit forecasts for 2002.

Korea's oil refiners - which pay bills in dollars - and airlines are also suffering as they try to adjust.

That has led to speculation that the Korean government will fight to kept the won-yen exchange rate above 10 to 1.

The won, which had been strengthening on the back of a fiery stock market rally since September, fell to 1,329 on Thursday. That's its weakest level since this April.

An official at South Korea's Finance Ministry said Thursday that the government doesn't have a particular target for the Korean won, Dow Jones news service reported.

There has been criticism from official sources in both South Korea and China over the hands-off attitude of Japanese officials. A series of comments from the finance ministry has been seen as encouraging the yen's run.

But the yen's moves have affected most Asian currencies.

The Taiwan dollar set a weak level for 2001 last week, at 35.30 against the dollar. It was trading at 35.08 late on Thursday afternoon.

The Thai baht, Philippine peso and Indonesian rupiah have all weakened as well.