Japan's New Economic Plan Should Be a Boon to U.S. Stocks, Analysts Say
Aug. 04, 1995
NEW YORK (AP) _ Japan tweaked the foreign currency markets this past week, reminding U.S. stock investors they need to keep a vigilant watch on the dollar.
The greenback came into focus Wednesday, when Japan and the United States coordinated purchases of dollars in an effort to boost the U.S. currency and brake the recent sharp rise in the Japanese yen.
The concerted intervention did just what it was supposed to do. The yen climbed off its high horse for a while, dropping more than 3 percent against the dollar Wednesday alone. The yen has declined against the dollar about 10 percent since the beginning of the year. On Wednesday, the dollar also rose against European and other world currencies.
The dollar was one of several factors that investors juggled this past week.
The takeover wars heated up, with announcements of three major acquisitions: Walt Disney Co. of Capital Cities/ABC Inc., Westinghouse Electric Corp. of CBS Inc., and Union Pacific Corp. of Southern Pacific Rail Corp.
And the market was unusually volatile. The Dow industrials gave up a 55-point gain on Wednesday to close down 10.22 points, and bailed out of a 41-point loss on Thursday to close up 11.27. On Friday, the blue chip index fell 17.96 to close at 4,683.46, down 32.05 for the week.
Through it all, the dollar was a major consideration. The currency intervention Wednesday, the third such effort since April 25, was an attempt to reinforce an economic plan put forth by Japan to shore up its flagging economy and rein in the yen.
Japanese businesses have been complaining about the yen's rise against the dollar, which has raised the price of Japanese-made goods on world markets and made it difficult for Japanese businesses to compete with cheaper imports.
To try to buck up the dollar and force the yen lower, Japan's Finance Ministry said it will allow Japanese insurance companies to make loans in currencies other than the yen. It also lifted limits on their loans to foreign borrowers.
The new policy should unleash hundreds of billions of dollars of Japanese-held money _ which has until now stayed for the most part in Japan _ onto the worldwide financial markets, said Michael Metz, Oppenheimer & Co.'s market strategist.
The result could be a buying spree for dollar-denominated assets, including stocks. ``I find that profoundly bullish worldwide,'' Metz said.
Not only should the new policy lure Japanese investors into the U.S. markets, but it should help Japan's economy and the world economy recover, Metz said.
``This will get Japan to recycle its surpluses rather than repatriate them, and head off a recession or collapse,'' Metz said. ``It could usher in a new period of monetary stimulous throughout the world. I expect the (German) Bundesbank to follow with lower rates in Europe.''
Wall Street, in its insistence these days on reading most good news as bad, reacted to Japan's plan and the resulting rise in the dollar by selling the stocks of U.S.-based multinational companies.
Their reasoning: A rising dollar makes U.S. goods more expensive overseas and could hamper sales by U.S. companies in foreign countries.
``It squeezes profit margins for multinationals operating in Japan,'' said Suresh L. Bhirud of Bhirud Associates, a Stamford, Conn. research firm and money manager.
``Although some analysts argue that the yen needs to fall a lot more to really change all this, that 10 percent is not nearly enough, on the margin, it might be. Someone like Caterpillar directly competes with Japanese companies, so, for them, the strength in the dollar is not all that positive.''
Caterpillar shares dropped 3/4 to 67 1/4 on Wednesday, along with the shares of other U.S.-based multinational companies.
In addition to the pressure on margins that a stronger dollar could bring, some observers said the U.S. stock market, having made more than 20 percent gains so far this year, is too expensive right now to attract large Japanese purchases.
``This is not the most opportune time for Japanese investors to invest,'' said Dan Ascani, research director at Global Market Strategists, Inc. in Gainesville, Ga., although he added that even a modest correction in the U.S. stock market could open the floodgates of Japanese investments.
On Friday, the NYSE's composite index fell 0.02 to 299.91, down 1.47 for the week. The Standard & Poor's 500-stock index rose 0.19 to 558.94, off 3.99 for the week.
The Nasdaq composite index climbed 8.39 to 991.09, but lost 14.19 for the week. And the American Stock Exchange's market value index advanced 1.35 to 524.20, gaining 2.13 for the week.
The Wilshire Associates Equity Index, which is the market value of NYSE, American, and Nasdaq issues, ended the week at $5.52 trillion, off $37.55 billion from the previous week.
End adv for weekend editions Aug. 5-6