Yen comes off nine-month high


Shiokawa clarified this weekend's comments, saying Japan had not agreed to a yen at 115 though that was the direction

by Geoff Hiscock
Asia Business Editor

TOKYO, Japan (CNN) -- The Japanese yen touched a nine-month high against the U.S. dollar of 118.32 in early trade on Tuesday.

But the rapid decline of the dollar against the yen eased later in the day, with the yen weakening slightly to 118.73 as trade switched to Europe.

Japanese Finance Minister Masajuro Shiokawa on Tuesday clarified comments he made over the weekend suggesting the dollar was headed down to 115 yen.

Shiokawa told reporters he meant there was speculation it would fall to the 115 level, and Japan must stop that from happening (full story).

That is being viewed as a likely sign the Bank of Japan will intervene again if the dollar weakens sharply.

Matsui: Strength won't be sustained

Previous market intervention by Japan's central bank invariably has been brief, designed to take the sting out of what it sees as a too-rapid rise in the yen.


The yen's run against the dollar could spell short-term trouble for companies counting on a rate of around 125

Its short-lived activity has no impact on underlying currency trends, which are driven by economic fundamentals and trader sentiment.

Analysts say that in any case, the risks of yen strength are overstated.

Goldman Sachs chief strategist in Tokyo, Kathy Matsui, acknowledges that the yen may spike up in value, but says any strength would not be sustained.

She says any U.S. weakness will be relatively short-term, with her bank's latest forecast suggesting a soft landing for the U.S. economy.

Goldman Sachs is forecasting an average exchange rate of 129.3 yen to the dollar for the financial year ending in March 2003, and about 120 the following year.

A potential problem

HSBC in Tokyo sees more strength in the Japanese currency, tipping a rate of 120 for the year to March 2003 and 114 the following year.

Matsui and HSBC chief economist Peter Morgan agree that yen strength becomes a "potential problem" for exporters from about 115 onwards (full story).

Most of the big exporters, such as Sony and Toyota, have budgeted on a rate of 124-125 this financial year.

But analysts stress that it is the weakness of the U.S. dollar, rather than yen strength, which is the issue.

The yen has seen far more dramatic moves in the past. From 1990, when it traded at 159 to the U.S. dollar, the yen appreciated by nearly 50 percent to an exchange rate of 80 to the dollar in 1995.

Cyclical rebound in progress

Since then, the currency has depreciated by 44 percent.

Matsui told CNN that all the latest figures on the Japanese economy are consistent with a cyclical rebound. She said she is not surprised that the signs of recovery are increasing.

But she said the big questions remain how sustainable Japan's recovery will be, and whether Japan will be capable of decoupling its economy from the global cycle.

"I have my doubts about that," she said.