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Dollar Jumps Against Yen on Japanese Official’s Remarks

May 24, 1996

NEW YORK (AP) _ The dollar surged to the highest level against the yen in more than a month Friday after a senior Japanese Finance Ministry official doused widespread expectations of higher interest rates in Japan.

But the dollar ended lower against the mark, which also derived strength from a sell-off in yen. The dollar was mixed against other currencies.

Traders said foreign-exchange movements were exaggerated by light volume going into the three-day weekend, and most transactions had concluded by late afternoon. Markets in the United States and Britain will be closed Monday.

By 4 p.m. in New York, the dollar traded at 107.80 yen, up from 106.93 yen Thursday and the highest level against the Japanese currency since April 18. The dollar also traded at 1.5420 marks, down from 1.5425 marks Thursday.

Traders said the catalyst for the dollar’s strength against the yen came early in the day when Eisuke Sakakibara, head of the Japanese Finance Ministry’s international finance bureau, said market expectations that the Bank of Japan may raise interest rates soon have ``greatly diminished.″

Sakakibara, who was addressing a group of Japanese business executives in Tokyo, wouldn’t elaborate on that remark. But it was widely viewed as evidence that Japan’s central bank won’t soon be raising rates in the near future.

The Bank of Japan has kept its base lending rate at an all-time low of a half percentage point since last September to help stimulate the economy through cheaper borrowing costs. But the low rate has diminished the returns on investments denominated in yen relative to other currencies.

Many traders have concluded higher rates in Japan are inevitable as the economy climbs out of a protracted slump, and this expectation has helped support the yen against the dollar and the mark. So Sakakibara’s comments caught them off guard.

``There was a lot of buying against the yen afterward,″ said Liz Goldberg, a trader at the New York branch of Germany’s Hypo Bank.

Some traders said the dollar drew support from a rally in the U.S. bond market after the government reported weaker factory orders for April, further evidence that U.S. economy isn’t growing at an inflationary pace.

The bond rally helped the stock market, further raising demand for dollars and putting pressure on traders who had speculated the U.S. currency could weaken going into the Memorial Day weekend.

``I think basically the real story today was the market got caught a little short on dollars,″ said Peter Wadkins, a vice president at the New York branch of Britain’s Standard Chartered Bank.

Other late dollar rates in New York, compared with Thursday: 1.2665 Swiss francs, up from 1.2655; 5.2190 French francs, down from 5.2235; 1,558.92 Italian lire, down from 1,560.00; 1.3740 Canadian dollars, down from 1.3743.

The British pound traded at $1.5120, unchanged.

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