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By Graham Earnshaw

TOKYO, Nov 5, Reuter – The U.S. dollar slumped to new post-war lows in Tokyo on Thursday as stock markets across East Asia slid further in response to continued falls in New York and London share prices.

The dollar reached a record low of 135.35 yen and 1.6887 West German marks before aggressive dollar-buying by the Bank of Japan helped push it back up to end the Tokyo day at 135.95 yen and 1.6940 marks.

Dealers said they saw the dollar dropping further and some talked about testing the 130 yen barrier before too long. They said the main factors dragging the dollar down were pessimism over the U.S. budget deficit negotiations and reported comments by U.S. Treasury Secretary James Baker that the U.S. may be willing to let the dollar ease.

The Tokyo stock market, the world’s largest, closed sharply down, with the key index down 430 points at 22,629.59, a 1.9 per cent loss on the day.

Sydney’s key share index was down 39 points to 1,250, New Zealand’s fell 92 points to 2,203, and Hong Kong’s Hang Seng Index was down another 113 points at 1,964, according to preliminary figures.

Brokers around the region said the continuing share sell-offs in New York and London and confusion over the future of the U.S. economy and dollar all weighed heavily on their markets.

Japan’s export-oriented companies suffered particularly because their goods become more expensive in dollar terms as the U.S. currency declines.

“The falling dollar weakens Japan’s exporters,” said a Japanese share broker. “And it is not just the exporters but the companies that supply them and rely on them that lose.” On the foreign-exchange markets, Tokyo dealers estimated the Bank of Japan bought some 1.4 billion dollars throughout the day to prop up the currency.

“The dollar is likely to fall towards 130 (yen) and 1.65 marks in the near future unless West Germany and Japan lower their interest rates,” said a senior dealer at a Japanese bank.

“Intervention by the Bank of Japan, without cooperation by the U.S. and West Germany, cannot arrest the dollar’s fall in this extremely bearish climate,” a dealer at a major U.S. bank said.

On the U.S. budget deficit, seen by many analysts as the key to restoring confidence to the world’s markets, Senate Republican leader Robert Dole urged President Reagan to step into the negotiations to help achieve an agreement before Friday.

A failure to reach agreement on reducing the deficit by the weekend could further unsettle financial markets looking to Washington for an accord to reduce the huge debt, Dole said.

A White House spokesman said progress was being made in the bipartisan negotiations and suggested an announcement could be made by the weekend.

Meanwhile, by late afternoon in East Asia, gold was trading at about 466.25 dollars an ounce.

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