The dollar nosedived below ¥96.00 Monday for the first time in nearly 13 years as fears of a U.S. financial industry meltdown persist amid America’s festering subprime mortgage loan crisis.
At 5 p.m., the greenback traded at ¥97.37-39 in Tokyo, down from ¥100.28-30 at 5 p.m. Friday. The dollar briefly dropped to ¥95.77, marking its lowest level since August 1995.
The yen’s surge, which is expected to deal a blow to Japanese exporters, triggered a Monday selloff at the Tokyo Stock Exchange. The 225-issue Nikkei average dropped below the 12,000-mark for the first time since Aug. 10, 2005. It closed down 454.09 points, or 3.71 percent, at 11,787.51.
The broader Topix index of all first section issues on the TSE fell 43.58 points, or 3.65 percent, to 1,149.65.
Hideyuki Ishiguro, a strategist at Okasan Economic Research Institute Co., said the Nikkei stock average will probably fall as low as 11,100 this week.
“The recent moves in the currency market are excessive, and I’m worried about it,” Finance Minister Fukushiro Nukaga told reporters in the morning.
Asked about the possibility of yen-selling intervention, he responded: “We’re not thinking about any specific action.” Japanese financial authorities have steered clear of currency intervention for the past four years.
“Such wild movement is not favorable to the Japanese economy as well as the world economy and the view is shared by the Group of Seven industrialized nations,” Chief Cabinet Secretary Nobutaka Machimura said.
Economists said a turnaround is not likely soon.
“The trend was triggered in the U.S. So unless credit-easing in the U.S. stops, the yen’s appreciation (against the dollar) and the fall in stocks will not stop,” said Takahide Kiuchi, chief economist at Nomura Securities Co..
Market watchers expect the dollar to fall further, with specialists forecasting a dip below ¥90.00 later this year.
The direction financial markets take over the next few months largely depends on the steps the U.S. financial authorities take, according to Credit Suisse economist Satoru Ogasawara.
Some economists point out that the continuing uncertainty in the U.S. financial industry makes it hard to predict the health of global financial markets.
“The overall situation is still unclear,” said Kenichi Kawasaki, an economist at Lehman Brothers in Tokyo. “The recent rate cuts by the (Federal Reserve) are having limited impact. The financial markets won’t calm down unless public funds are injected (into troubled financial organizations).”
At the end of last month, Lehman changed its outlook for the U.S., predicting the world’s biggest economy would slip into a recession in the January-March quarter.
The yen’s recent surge is expected to weigh heavily on corporate earnings for the business year starting April 1.
Nomura Securities had predicted a 6 percent rise in pretax profits for about 400 major Japanese firms for the year.
“But we now expect a two-digit fall (in corporate earnings) for the same year, based on an exchange rate of ¥95 and oil at $110 a barrel,” Kiuchi said.
A strong yen and high oil prices present serious challenges to Japanese companies, Kiuchi noted. Smaller firms are also struggling as materials prices grow.
On the other hand, a stronger yen lowers the price of imported goods and has a positive impact on importers.
“But the stronger yen is not offsetting the (sharp) rises in prices of oil and other materials,” he said.
The government is having little success turning the tide. If it manages to shore up the economy and the stock market, it would lead to yen-buying and a further rise against the dollar, Kiuchi said.