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Fri, May 24, 2002 - Page 21 News List

Japan may repeat its intervention to bring the yen lower

BLOOMBERG , NEW YORK

Japanese authorities may need to repeat their sales of yen in coming days to keep the currency from returning to a 5 1/2 month high reached in earlier trading, investors said.

The Bank of Japan, on behalf of the Ministry of Finance, sold yen for dollars to weaken the currency, which had rallied 6.7 percent this quarter. The move took the currency from its strongest level since Dec. 3, at Japanese yen 123.53 per dollar, to Japanese yen 125.06.

Central banks' spotty record with maintaining the effects of their currency interventions in recent years have some traders and investors skeptical enough that they stepped back into the markets to buy yen, paring the currency's slide by half within hours.

Using history as a guide, the Bank of Japan may have to drum its point home.

"For me to be convinced, it would take seeing if they start to meet other dips [in the dollar-yen exchange rate] with strong intervention," said Sudesh Mariappa, head of global portfolio management for Pacific Investment Management Co in Newport Beach, California, the world's largest bond fund. "Unless you continue to do it in meaningful size and sending a message, the currency will come back to previous levels."

Japan doesn't want a rising yen to quash its nascent economic recovery by making its goods more expensive in overseas markets.

The world's No. 2 economy probably will grow 0.4 percent this quarter after shrinking the previous three in its worst post-war recession, according to a Bloomberg News survey of economists.

Similar concerns for protecting the value of exporters' overseas profits led the central bank to sell yen on several previous occasions. The results may be instructive, analysts said.

While the Bank of Japan succeeded in driving its currency down Japanese yen 4 per dollar when it last intervened, selling Japanese yen 3.2 trillion (US$26 billion) on seven days in late September, it had to sell yen more than a dozen times between January 1999 and April 2000, totaling some US$80 billion, to keep the yen from strengthening past Japanese yen 100 per dollar.

Previous interventions have ``only managed to slow the yen's gain,'' said Shahab Jalinoos, a currency strategist at UBS Warburg in London, who forecasts the yen at Japanese yen 120 per dollar at the end of the year. "Interventions probably won't reverse the trend for yen strength.'' In the period from June to October 1999 alone, the central bank sold about Japanese yen 4.9 trillion (US$39 billion) for dollars only to see the currency strengthen 15.4 percent.

Possibly hampering the effectiveness of Japan's actions, the central bank today acted alone. Joint intervention among major central banks to weaken the yen would be the most effective way to reverse the currency's recent gains, some investors said.

"There doesn't seem to be a real threat of coordinated intervention," said Robin Stebbins, a treasury market analyst at Ried Thunberg & Co, a research firm based in Westport, Connecticut.

That's unlikely to change at a time when US manufacturers are lobbying government to encourage a weaker dollar to help their own exports. Other central banks have tried and failed to prescribe where currency market values should be set.

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