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Tuesday, Nov. 13, 2007

U.S. recession fears lift yen, slam Nikkei

Mounting subprime ills mean no rate hike


Staff writer

The yen surged to an 18-month high against the dollar Monday while the benchmark Nikkei index briefly dipped below 15,000 as fears mounted that ballooning subprime loan losses will trigger a recession in the U.S.

The yen touched the upper 109 range against the dollar Monday, the highest levels since May 2006. At 5 p.m., it traded at 110.31-33, up from 110.40-45 in New York and 112.65-68 in Tokyo at 5 p.m. Friday.

The 225-issue Nikkei stock average shed 386.33 points, or 2.48 percent, to close at 15,197.09, its lowest close since Aug. 7, 2006. The index briefly fell to 14,998.51, sinking below the 15,000 threshold for the first time since July 27, 2006. The Nikkei has lost nearly 1,700 points over the past seven trading days, its longest losing streak since early May 2005.

Rumors spread last week that major British financial institutions, including HSBC Holdings PLC and Barclays PLC, may announce writedowns in losses from mortgage-related securities.

Analysts say a weak dollar has been a trend for some time, but Chief Cabinet Secretary Nobutaka Machimura's remark Monday that the government has no plans to carry out market intervention further lifted the yen.

Machimura also said a stronger yen may hurt Japanese exporters, but it is "a good thing" for Japan because it means the value of Japan is higher.

"Factors from overseas, such as the subprime loan problems, are affecting the Japanese" economy, Machimura said. "We will closely monitor the situation."

Yasunari Ueno, chief market economist at Mizuho Securities Co., said Machimura's comments as well as recent comments by the U.S. officials show that both sides are ready to tolerate a weaker dollar.

But a weaker dollar will cast a dark shadow on Japan's big-name exporters, whose profit largely relies on overseas markets, causing Japanese stocks to plunge, Ueno said.

Canon Inc., which generated almost 75 percent of its sales overseas last year, slid ¥150 to finish at ¥5,430. Honda Motor Co. dropped ¥140, or 3.59 percent, to close at ¥3,760.

"At the moment, there is no factor (pushing) investors to purchase more stocks," Ueno said. "Everyone is waiting to see when this mortgage loan situation will come to an end."

Market watchers said the bleak prospects for the U.S. economy, which would also affect the Japanese economy, will force the Bank of Japan to shelve any plans to hike the interest rate.

BOJ Policy Board members began a two-day meeting Monday and were expected to keep the rate unchanged in a vote Tuesday.

"The BOJ may not be able to raise rates until next summer or even by the end of next year," said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co.

Because the BOJ has not raised the interest rate, the prices of assets, including real estate, are on the rise, Mizuno said.

The central bank should have raised the rate in June or July, he said, noting now it is too late.

"If this trend (of a stronger yen and falling stock prices) continues, there will be growing voices by market participants to cut the interest rate," he said. "But the BOJ should not comply with such requests."

Information from Kyodo added



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