TOKYO (Reuters) - The dollar dropped through 100 yen for the first time in 12 years, sliding on doubts about the effectiveness of the Federal Reserve’s efforts to aid strained credit markets and limit the damage to the U.S. economy.
The dollar also tumbled to all-time lows against the euro and Swiss franc on Thursday.
-- The dollar dropped 1.7 percent on the day to a low at 99.77 yen JPY=, the lowest since late 1995. The dollar has shed 10 percent against the yen in less than three months this year.
“Currency rates are decided by markets, so I cannot comment on whether they are high or low. But rapid fluctuations in foreign exchange rates are not favorable.”
“What’s behind (the yen’s rise) is dollar weakness. There is no sense that U.S. credit fears will bottom out. There is also growing signs that the U.S. economy will slow further.
“In January, exports to the United States fell. If export growth slows, it would affect production so we need to watch developments carefully.”
“Even Toyota (7203.T) will find it difficult to achieve higher profits with the dollar at 100 yen.”
TAISUKE TANAKA, CURRENCY STRATEGIST, LEHMAN BROTHERS, TOKYO
“We are expecting 95 yen in the second quarter. This is our official forecast. The U.S. economy is falling into a recession, and we are expecting 50 basis point cut next week by the Fed. they will cut further in April and June. So in this circumstance, the U.S. dollar, the currency of the biggest debtor country, tends to decline. And the yen, as currency of the biggest creditor country, tends to go up. Some in the market ask why people are buying yen while the Japanese economy is also deteriorating. But in these circumstances, the creditor currency tends to be under upward pressure.
“We expected the MOF would not intervene because the real effective exchange rate in yen is still low, and the G7 is requesting that China make their currency regime more flexible. In this situation, Japanese authorities may hesitate to manipulate the currency. I think Japanese monetary authorities are also hoping that the yen should be treated as one of the key currencies, especially in Asia. So the MOF may think that currency manipulation should be avoided.
“But political pressure or requests to intervene in the dollar/yen market will be increasing. The Japanese stock market is also dropping. So if the European authorities should call on concerted actions in currency markets, Japanese authorities would accept or join it. But at the moment it would be difficult. If they intervene in the market, the market trend, upward trend in yen against dollar, would not change as long as the fundamentals don’t change.”
“The yen at 100 is a key psychological level. If we do see the yen move through that there would be significant financial effects at work. In particular we could see a lot of short covering, a pick up in capital repatriation given the yen’s strength and also some option strategy unwinding.
“We have not seen the BoJ intervene at this point and it reflects several things — U.S. policy makers have probably warned against significant intervention because it is now more appropriate for the U.S. to benefit from a weak currency and more importantly most of Japan’s exports are consumed by Asia, the U.S. only accounts for 20 percent.”
“It is almost certain now that Japanese companies will see profits decline in 2008 given the double impact of the stronger yen and high raw materials costs. I would expect some companies to now set their earnings estimates based a dollar rate as low as 95 yen.”
NAGAYUKI YAMAGISHI, STRATEGIST, MITSUBISHI UFJ SECURITIES,
“The most direct impact of course will be on companies that trade with America, but this will also increase awareness of risk among investors and cause them to get out of stocks.
“Nikkei futures are going down now and the Dow is likely to be weak — a 400-point fall like the other day isn’t out of the question. If this happens the Nikkei could fall 300 points or so from where it finished today. But given that the Nikkei is now getting quite cheap this could also provide a good opportunity for bargain hunters.”