Yen has big gain against the greenback

The yen had its biggest gain in a month against the dollar, ending an 11-day slide, after Japanese officials said the government may give money to banks to help them write off more than US$1 trillion in bad debt.

"If they're going to deal with the banking problems, that would bode well for the yen" by attracting foreign capital, said Grant Wilson, a senior currency trader at Mellon Financial Group in Pittsburgh. It shows they're "taking the steps they need to reform the economy," he said.

The eight biggest Japanese banks said in November they had ?20 trillion (US$152 billion) in problem loans at the end of March, a figure that reached ?150 trillion when all nationwide loans were taken into account, according to financial regulators.

Japan's currency rose to ?131.05 per dollar, from ?131.79 in New York yesterday, for only its second gain this month. It strengthened to ?115.82 per euro from ?116.30.

The third recession in a decade in the world's second-largest economy has pushed the yen down 14.5 percent against the dollar This year, its steepest loss since 1989. Investors are speculating Japanese officials are letting the yen fall to boost exports and spur growth.

On the week, the yen is down 1.3 percent against the dollar, the fourth week of losses, and sank 0.5 percent against the euro, for a seventh weekly decline. The drop came on concern Japan's slump is worsening. Figures today showed the jobless rate rose to 5.5 percent, the highest level in almost half a century.

Prime Minister Junichiro Koizumi and Taku Yamasaki, secretary general of the ruling Liberal Democratic Party, yesterday discussed using public funds to support banks while they deal with bad loans -- such as those on which payments are delinquent or the borrower is bankrupt, Chief Cabinet Secretary Yasuo Fukuda said yesterday.

Bank shares, which tumbled to 18-year lows earlier this month, surged today on expectations for a bailout and after the Mainichi newspaper reported the government will release a new economic ``vision'' for the banks early next year.

"If they're really able to help the banking system, that would be a tremendous improvement" that would bolster the yen, said Mark Thome, a vice president of foreign exchange at Fortis USA Financial Markets.

Cleaning up banks' balance sheets would raise expectations for an increase in lending that may help Japan pull out of recession, he said.

The slump in bank shares this month coincided with the largest net sale of Japanese stocks by foreigners since May 2000, totaling US$3.7 billion in the week through Dec. 14, according to the Tokyo Stock Exchange.

Some analysts said giving money to banks would be bad for the yen, as it may prove to be only a temporary salve to get them through fiscal-yearend reporting at the end of March.