Indonesian crisis will pressurize yen
Indonesian crisis will pressurize yen
TOKYO (Reuters): The Japanese yen is expected to come under
increasing pressure as the crisis in Indonesia takes its toll on
Japanese banks and companies operating there, dealers and
analysts in Tokyo said yesterday.
"Japan is most susceptible to Indonesian problems due to its
close relationship with the country in various areas, such as
trade and finance," said Taisuke Tanaka, a strategist at Credit
Suisse First Boston (CSFB) in Tokyo.
The timing of the crisis could not have been worse for Japan,
which is facing deflationary pressure at home, the dealers and
analysts said.
"The Japanese economy is currently feeble and very vulnerable
to any external shock," said CSFB's Tanaka.
The shares of Japanese companies and banks exposed to
Indonesia could come under strong selling pressure and therefore
drag the yen lower if order is not restored soon in Indonesia,
dealers said.
Japanese banks are the largest lenders to the riot-torn
country, accounting for 39.4 percent of its outstanding foreign
bank debt of $58.7 billion at the end of June 1997, the Bank for
International Settlements (BIS) said.
Japan's direct investment in Indonesia totaled 272 billion yen
($2.02 billion) in the fiscal year ended March 1997, accounting
for about 21 percent of total Japanese direct investment in Asia,
the Ministry of Finance said.
But Tokyo's foreign exchange market has so far reacted calmly
to news of rioting in Jakarta, with operators also cautious about
taking large positions ahead of the weekend meeting of leaders of
the Group of Eight (G-8) nations in Birmingham, England.
The dollar stood at around 134.05/15 yen in late afternoon
Tokyo, compared with 133.72/82 yen in New York late Thursday.
Meanwhile, trading of the rupiah came to a halt in Asia on Friday
after Bank Indonesia suspended clearing activity.
"We stopped quoting rupiah rates as we can no longer settle
trades. We were unable to settle recent deals whose settlement
was due today," said a dealer at a U.S. bank in Tokyo.
"There is really nothing we can do but wait until Bank
Indonesia resumes clearing," said the dealer, who declined to be
named.
An official at Bank Indonesia told Reuters on Friday the
central bank was not doing any clearing because of violence in
Jakarta, but the bank would resume clearing on Monday if the
situation improved.
"The worst case scenario for the market is current political
unrest leading to a coup d'etat," said the U.S. bank dealer.
At least 165 people have been killed in four days of protests,
rioting and looting in Jakarta, officials said.
"If a coup does take place, we won't be able to settle
anything for a long time. That would definitely have an impact on
the dollar/yen," the dealer said.
The rupiah was quoted around 10,500/11,500 to the dollar in
afternoon trade. It fell as low as 11,800 in London on Thursday.
"I don't think anyone is actually trading," the U.S. bank dealer
said.
Japanese government official said early on Friday that
Indonesia was likely to be the main issue when G8 leaders gather
for a working dinner on Friday.
But dealers were pessimistic about the G8's ability to restore
confidence in Indonesia.
"We will be watching how far the G8 nations will go in
expressing support for Indonesia," said Takuma Kurosawa, chief
manager of the international treasury division at Mitsubishi
Trust and Banking Corp.
"But I don't think the downward trend in Asian currencies will
change after the summit. At the moment, people don't have any
better place to put their money than the dollar."