Japan concerned over rapid rise of U.S. dollar

Japan concerned over rapid rise of U.S. dollar

TOKYO (AFP): Japanese are starting to worry about the impact
of the dollar's new-found strength on the economy, with Prime
Minister Ryutaro Hashimoto expressing concern yesterday about
rapid movements of the U.S. unit.

"It's not good for a currency to fluctuate rapidly," Hashimoto
told reporters, preferring instead exchange rate movements
"within a certain range. "

The prime minister was referring to the dollar's advance past
110 yen here Tuesday, its strongest level in 29 months and
representing a 38 percent increase in value against the yen since
its fall below 80 yen a year ago.

The dollar held above 110 yen here throughout yesterday,
moving from 110.16 yen to 110.37 yen. It was at 110.29 yen in
late trading.

Analysts say the Japanese economy will be able to stave off
possible negative impacts from a higher dollar if the currency
stays at around 110 yen, but further appreciation could be
damaging.

"At the 110 yen level, we will start seeing not only
favorable effects but also negative effects on the economy, but
the problems are not so bad at 110 yen," said Tokyo Research
Institute analyst Toshio Sumitani.

"But if it goes up to 115 yen, it's not going to be easy for
the economy," Sumitani said, referring to upward pressure on
prices and interest rates, as well as the possible adverse impact
on corporate earnings.

Bank of Japan governor Yasuo Matsushita told a regular news
conference the dollar-yen rate was moving "in the trend expected
by the G7 (Group of Seven industrialized countries)."

Matsushita said he saw "little possibility that the rising
tempo in domestic prices will strengthen" due to the decline of
the yen against the dollar, although it has sent import prices
firming since April.

Nikko Securities Co. Ltd. said in a survey yesterday the
higher dollar would boost Japanese manufacturers' earnings, while
depressing the performance of non-manufacturers.

At 110 yen to the dollar, manufacturers would post an average
24.1 percent rise in pre-tax profits for the year to next March,
but non-manufacturers would suffer an average 3.0 percent profit
fall, it said.

The gap between the two sectors would widen at 115 yen, with
manufacturers seen enjoying an average 33.9 percent year-on-year
profit growth while non-manufacturers would have an average 4.7
percent decline.

Carmakers are expected to benefit most from the higher dollar,
with pre-tax earnings estimated to increase by 35.5 percent at
105 yen, by 47.1 percent at 110 yen and by 58.8 percent at 115
yen, according to the research arm of Nikko Securities.

But oil distributors, along with utilities, are seen suffering
a major setback in earnings as the dollar advances against the
yen.

Nikko Research estimates pre-tax profits of oil companies will
drop 25.2 percent at 105 yen, 46.7 percent at 110 yen and 68.2
percent at 115 yen.

Tetsuro Sawano, an economist at Nikko Research, said the
dollar's appreciation to 110 yen would have "no immediate effect"
on the economy.

"While import prices are rising, domestic prices overall are
still largely stable. So the Bank of Japan is not likely to
change its easy monetary policy soon if the dollar-yen rate
remains at the current level," Sawano said.

"But if the dollar goes up to 115-120 yen, the central bank
will have no choice but to raise the key interest rate" from the
record low 0.5 percent, a step that may dampen Japan's economic
recovery that has become evident in the recent months, he said.

Sawano also warned the dollar's excessive appreciation would
disrupt ongoing "structural reform" efforts by Japanese
manufacturers to make themselves less vulnerable to exchange rate
fluctuations.

"Following the yen's advance to record highs last year,
Japanese manufacturers have been trying to better balance imports
and exports. The dollar's further appreciation would put a damper
on these efforts," he said.