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."