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Dollar Rises, Tokyo Stocks Fall

May 17, 1999

TOKYO (AP) _ The dollar rose to its highest level against the yen in more than two months on Monday following the release of data showing a larger-than-expected drop in Japan’s March trade surplus compared to a year ago. Japanese stocks fell sharply.

The dollar bought 123.24 yen at midday, up 1.06 yen from late Friday in Tokyo and also above its late New York level of 122.73 yen on Friday.

The benchmark 225-issue Nikkei Stock Average shed 389.37 points, or 2.32 percent, to close the day’s trading at 16,421.02 points. On Friday, the average closed down 40.86 points, or 0.24 percent.

In currency dealings, the dollar’s rise above 123.00 yen came after Japan’s Finance Ministry reported that the March current account surplus _ Japan’s broadest measure of trade _ fell 25.5 percent to $8.76 billion from the same month last year.

Also Monday, the ministry announced that for the fiscal year that ended March 31, the current account surplus climbed 17.6 percent to a record high $124 billion. The previous record was $123 billion, set in fiscal 1992.

The dollar last traded above 123.00 yen on March 8.

Expectations for a widening gap between U.S. and Japanese bond yields helped boost the dollar as well, analysts said.

Bank of Japan Governor Masaharu Hayami said Friday that the central bank will maintain its easier monetary policy until deflation worries are dispelled.

Japan’s official discount rate, the interest rate charged by the Bank of Japan on loans to commercial banks, now stands at a record low of 0.5 percent.

The greenback’s strength also followed remarks by U.S. Treasury Secretary-designate Lawrence Summers, who reiterated that a strong dollar is in his country’s national interest, augmenting lower inflation and trade income.

Summers spoke Sunday following a weekend gathering of Asia-Pacific finance ministers in Malaysia.

In other currencies, the euro was traded at 131.30 yen, up from 130.33 yen late Friday in Tokyo.

On the stock market, share prices fell sharply after fears of higher U.S. interest rates led to a big drop Friday on Wall Street.

``There is fear New York is entering a bear-market phase and fear foreigners will stop buying Japanese stocks,″ said Kiyoshi Kimura, a strategist at Societe Generale.

On Friday, the Dow fell 193.87 points to 10,913.32, erasing a 106.82-point gain Thursday, after data showing a 0.7 percent increase in consumer prices caused bond yields to rise and sparked fears that the U.S. Federal Reserve might change its monetary policy.

Shares are lower across the board, with major exporters also racking up losses despite the sharp gains of the dollar against the yen.

A strong U.S. dollar usually pushes shares in exporters higher on hopes that their products will become cheaper overseas and that their repatriated earnings will rise.

``The market seems to be saying it wants additional measures to stimulate the economy,″ said Kunihiro Hatae, general manager of the stock division at Tokyo Securities, referring to recent speculation that the Japanese government may up spending.

In Tokyo on Monday, the broader Tokyo Stock Price Index of all issues listed on the first section was down 25.02 points, or 1.9 percent, to 1,322.43. The TOPIX closed down 4.52 points, or 0.33 percent, on Friday.

The yield on the benchmark No. 212 10-year Japanese government bond was unchanged from Friday’s close of 1.230 percent, priced at 102.42 yen.

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