Dollar plunges to a new low in defiance of Fed yen sales

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The Independent Online
THE DOLLAR yesterday slumped to another record post-war low against the Japanese yen in London, reflecting the growing conviction that the Clinton administration wanted the decline to offset the resurgent US trade deficit with Japan, writes Peter Torday.

In late London dealings, the dollar slid below 106 yen for the first time despite repeated waves of yen sales by the US Federal Reserve. The dollar ended at Y106.10 in London, down more than one yen from the previous close, but recovered to close at Y106.30 in New York. Speculation grew yesterday that the Bank of Japan may soon be forced to cut the official discount rate, currently 2.5 per cent, to halt the yen's rapid rise, and the Fed intervention was brushed off as an attempt to reduce market volatility.

The latest downward pressure on the dollar started in Tokyo, where Japanese dealers are anxious to sell all foreign currencies because Japanese corporations that traditionally invest abroad have ceased to send funds overseas.

The markets are also nervous ahead of critical trade talks between the US and Japan on Friday. The latest US trade deficit, for April, topped dollars 10bn, and over half the shortfall was due to America's deficit with Japan.