Yen rescue prompts Far East shares surge

Asian crisis: US move bolsters Japanese currency but the effect could be short-term
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The Independent Online
ASIAN FINANCIAL markets celebrated yesterday the successful intervention by the United States and Japan to push up the value of the ailing Japanese yen. But doubts swiftly emerged about whether the move would have any lasting effect.

In Tokyo, shares posted a 4.4 per cent gain after the currency markets gave the yen its biggest one-day boost in four years. The Nikkei 225 index ended 646 points higher at 15,361.54.

From a Wednesday close of some 142 yen to the US dollar, the Japanese currency strengthened to around 136.7 to the dollar during Asian trading.

But it later slipped back past the 137 level as doubts emerged in the currency markets about whether the Japanese government was ready to implement dramatic policy reforms at last.

Stephen Hannah, head of research at IBJ in London, said: "You have to wonder what in the end it will deliver. You cannot conclude yesterday was the turning point."

The markets are now nervously awaiting the outcome of an urgent meeting of G7 officials in Tokyo this weekend. Ryutaro Hashimoto, Japan's Prime Minister, pledged "bold" action. But he gave no indication of what it might be, and said there had been no deal with the US in return for its assistance in the currency markets.

Record one-day gains were recorded in stock markets across the region. The biggest rise was seen in Japan's neighbour South Korea, where stock prices rose more than 7 per cent. In Hong Kong the blue chip Hang Seng Index gained more than 6 per cent. Both the Philippine and Thai stock markets posted marginally greater advances.

The exact size of the US and Japanese government intervention in the markets is unknown, but probably amounted to more than $2bn. It was the first time in seven years the US had intervened in support of a foreign currency.

There was strong evidence that Washington's move came to forestall a devaluation by China. Chinese leaders have been dropping less than subtle hints about their unease over the falling value of the yen and the problems it is causing the Chinese economy.

The joint US-Japanese intervention in the market, and the hope that the Japanese government will finally deliver on Mr Hashimoto's promises of drastic action to tackle his country's economic problems, appeared to have persuaded investors that the free-fall of the yen is over, at least for a while.

Andrew Fung, of Commonwealth Bank of Australia in Hong Kong, said he expected the value of the yen to stabilise in the next two weeks and that it would trade in a range of 124-140 to the US dollar. "The market is taking the US intervention very seriously," he said.

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