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Dollar Briefly Hits 33-Month Low Vs. Yen

September 22, 2003

TOKYO (AP) _ The U.S. dollar touched a 33-month low against the yen on Monday, sparking Tokyo’s biggest stock sell-off in two years and fueling investor worries that currency swings might put the brakes on Japan’s export-driven economy.

The downturn, which saw the stock market’s main index sink more than 4 percent, came as Prime Minister Junichiro Koizumi kept Heizo Takenaka, a former university professor, as head of Japan’s economy and banking ministries in a Cabinet reshuffle that underlined the administration’s commitment to tough economic changes.

Analysts applauded the Japanese leader’s decision to hand Takenaka both the economic policy and financial services jobs. Takenaka has been one of the driving forces behind the prime minister’s economic reforms _ but has been sharply criticized by ruling party leaders who view change as a threat to vested interests.

``Koizumi kept his flag for reforms standing,″ said Koji Shimamoto, chief strategist for BNP Paribas in Tokyo. ``Carrying out reforms in Japan is very difficult, and Takenaka is putting up a good fight considering the obstacles.″

Appointed to the Cabinet as Japan’s new finance minister was Sadakazu Tanigaki. He replaced Masajuro Shiokawa, who is 81 and in poor health.

Tanigaki quickly reaffirmed Japan’s commitment to its currency intervention policy.

``It’s best for exchange rates to reflect fundamentals and move stably,″ he told reporters. ``The way we deal with foreign exchange won’t change much.″

The dollar tumbled to 111.37 yen in Monday morning trading in Tokyo _ its lowest against the Japanese currency since December 2000. It recovered by late afternoon to 112.31 yen in trading in Tokyo, down 2.93 yen from 115.24 yen here late Friday.

Roiling markets in Tokyo was a weekend statement by finance leaders from the Group of Seven industrialized nations calling for ``more flexibility″ in exchange rates. The G7 ministers, meeting in Dubai on Saturday, didn’t single out currencies. But traders interpreted it as pressure on Japan to stop buying dollars to curb the yen’s strength _ and some said it could send the dollar sliding lower in coming sessions.

Traders said the Bank of Japan, acting on behalf of the Finance Ministry, may have been buying dollars Monday to help the U.S. currency rally from its early lows. Japan has bought billions of dollars trying to weaken the yen.

Market analysts warned that if the weak dollar-strong yen scenario continues, it could hurt the exporters that Japan is relying on for an economic revival.

That was reflected in stock trading in Tokyo, where exporters were the hardest hit.

The Nikkei Stock Average of 225 issues on the Tokyo Stock Exchange dropped 463.32 points, or 4.23 percent, to close at 10,475.10.

It was the Nikkei’s sharpest fall in points since Sept. 17, 2001 _ when it lost 504.48 points, or 5.04 percent _ and its lowest finish in three weeks.

Traders said the Nikkei sank on concern that the yen’s sudden strength could gut profits for automakers, electronics companies and other exporters. Sony Corp., Toshiba Corp., Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. were among the blue-chip declines.

Goldman Sachs equity analyst Kunihiko Shiohara said although Japanese automakers have hedged currency risk, an unfavorable one-yen fluctuation still erases millions of dollars from Japanese automakers’ operating profits. For instance, Toyota would see its operating profit decline some 22 billion yen ($195 million), or about 1.7 percent, for every yen the dollar falls below forecast for the year.

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Japan’s Tokyo Stock Exchange: http://www.tse.or.jp

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