Yen falls amid doubts on reform

DOUBTS OVER Japan's commitment to structural reform sent the yen falling yet again yesterday. The renewed slide in the value of the Japanese currency coincided with news that Sanyo Securities, the brokerage, planned to cease trading and abandon its restructuring efforts.

Sanyo Securities, which filed for bankruptcy protection last autumn, was one of the first victims of the financial crisis in Japan.

Lawrence Summers, deputy US Treasury Secretary, underscored the importance of meaningful financial reform in Japan, telling a Senate hearing it was critical that Japan act decisively to remedy the difficulties in its banking system. "The situation in Japan is a source of very considerable concern," he said.

"This is a pivotal moment for Asia and the global economy. Weakness in Japan is now having a clear impact on the other troubled economies of Asia," Mr Summers said.

The dollar rose from 139.21 yen overnight to 141.23 yen in early trade yesterday. Later in the day, however, the dollar fell back from earlier highs on fears of renewed central bank intervention.

Andrew Davies, analyst at Monument Derivatives, said: "There's a bit of a stand-off going on. Currency market players are gently pushing the yen downwards to see where the pressure points are. The yen dipped down below 141 after reports that the Bank of Japan was checking currency rates in the market."

Last week, it emerged that the Bank of Japan and the US Fed had sold dollars and bought yen in an attempt to prop up the troubled Japanese currency.

Analysts said concerns about Japan's commitment to reform were the key reason behind renewed weakness in the yen. Mr Davies said: "There is a lot of uncertainty about the precise measures that Japan is going to produce. The markets want to be convinced that the measures will actually sort out the bad loans problem. There is nervousness at the moment because the market has only a general idea about what the `bridge bank' is going to do."

The Japanese government said yesterday it was racing to set up a "bridge bank" to provide loans to cash-strapped companies unable to obtain credit from the country's struggling private banks.

Ryutaro Hashimoto, the Prime Minister, said: "We will create a bridge bank that would have the ability to screen borrowers to distinguish healthy borrowers from unhealthy ones, and to extend new loans."

Details of the banking reforms remain vague, but the proposal is expected to be finalised in early July.

Renewed doubts about Japanese commitment to change came as Sanyo Securities, an ailing medium-size Japanese brokerage, said it had abandoned restructuring efforts and planned to cease trading.

However, the securities company said negotiations about a possible buyout would continue with a foreign financial company that Sanyo refused to name.

Sanyo applied for court protection from creditors last November as it sought to rebuild its operations under a corporation rehabilitation law.