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U.S. Trade Gap Sends Dollar Into Tailspin; Stocks Down

December 11, 1987

TOKYO (AP) _ The dollar tumbled to a 40-year record closing low against the yen and stock prices dipped Friday on news of an unexpectedly wide U.S. trade deficit in October.

The U.S. currency closed at 128.75 yen, the same as its opening and down a hefty 3.43 yen from its Thursday closing of 132.18 yen despite heavy intervention by the Bank of Japan.

The Japanese yen has now more than doubled in value against the U.S. currency since mid-February 1985, when one dollar fetched 263 yen.

″The dollar is falling fast, with a wave of sell orders swallowing up buy orders from the Bank of Japan,″ said a senior trader at a Japanese commercial bank shortly after the dollar’s record-low opening. He spoke on condition of anonymity.

What dealers called active support by the central bank did little to prop up the U.S. currency, which was traded in the narrow range of 128.10-128.83.

″Suddenly, we just got bombed with this U.S. trade deficit figure,″ said an analyst at a British securities firm who also spoke on condition of anonymity. The U.S. Commerce Department announced Thursday that the U.S. trade deficit widened to a record $17.6 billion in October, 25.3 percent higher than the $14.1 billion imbalance in merchandise trade recorded in September.

″It’s an unusually (large) figure. No one expected such a huge U.S. trade deficit,″ said Fumihiko Kawano, a senior official of Mitsui Bank’s Treasury Department. ″The dollar may go down as low as a 125-yen level this month unless the U.S. government comes up with a serious dollar-defense policy.″

On the Tokyo Stock Exchange, the Nikkei Stock Average of 225 selected issues, a 395.14-point winner Thursday, shed 245.03 points to finish at 23,035.81 points.

Michio Katsumata of Nomura Securities, Japan’s largest securities firm, said the market’s downturn was influenced by a big U.S. trade deficit and earlier dollar-selling on the New York market.

″It’s an unsurprising reaction to the New York market, but investors here remain optimistic. The market managed to stay above 23,000 all day,″ said Paul Migliorato, a broker at Jardine Fleming Ltd.

″I don’t think the Japanese (stock) market is going to be hit so hard. Most of the selling pressure dissipated this week,″ he added.

Eric Rasmussen, senior economist at Jardine, pointed to a decrease in Japan’s trade surplus in November as one reason for the market’s relative upbeat mood.

Finance Minister Kiichi Miyazawa told reporters he was hopeful the U.S. trade balance will eventually improve in Washington’s favor, and noted that the surge of U.S. imports in October was due in part to the traditional Christmas shopping season.