Yen soars against dollar in hectic trading: Japan's growing trade surplus pushes currency higher amid signs of weakening recovery in America

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The Independent Online
THE JAPANESE yen was on the verge of breaking the Y100 to the US dollar barrier yesterday as it continued its relentless surge against western currencies.

The yen, which started the year at Y125 to the dollar, reached yet another record of Y101.80 in hectic Friday trading in Tokyo and dealers said there was nothing to stop it going higher next week. Later, it ended slightly weaker in London, at Y102.45, but still almost one yen higher than the previous close.

The latest spur came from last month's trade figures, released earlier in the week, which showed a 28 per cent increase on the surplus for July compared to last year, the thirty-first monthly surplus increase in a row.

In addition, US figures appeared to lend weight to the view that the American recovery is weakening. The consumer price index rose by just 0.1 per cent in July following a 0.2 per cent fall in wholesale prices announced earlier this week. In the first seven months of the year, US inflation rose at an annual rate of 2.8 per cent.

The inflation figures, together with a weak 0.2 per cent increase in June business inventories, provided further evidence of sluggish growth. Analysts said there was now little chance of a tightening in US monetary policy.

Commenting on the strengthening yen, Matthew Berlow, of Credit Lyonnais in Tokyo, said: 'It is hard to see any reason why the yen should get weaker. The (Japanese) economy is weak, so imports are down. This means the trade surplus will stay high. And so the yen will stay high.'

The pressure on the yen from the high trade surplus - expected to hit dollars 150bn this year - has been compounded by European dealers who have bought yen as a safe haven.

Morihiro Hosokawa, the Prime Minister, has appealed for internationally co-ordinated intervention to halt the rise of the yen, which his government fears will delay the nation's economic recovery. But despite heavy buying of dollars by the Bank of Japan, there was little sign of help from other central banks.

In London, meanwhile, the FT-SE 100 Index touched a new peak of 3,010.1 a gain of just one point.

Elsewhere on the foreign exchanges the French franc slid to a new record low after Edouard Balladur, the Prime Minister, reaffirmed the franc fort policy that dampened rate-cut hopes.

The franc dropped to a record closing low of Fr3.5356 to the mark, a loss of 1.73 centimes. At one stage, it touched a low of Fr3.5470.

Selling was prompted by the approach of a three-day weekend in France and hints by Mr Balladur that France would press for international capital controls to quash currency speculation. Mr Balladur's support for slow interest rate cuts was another factor behind the decline; the markets favour more rapid reductions.

Julian Jessup, of Midland Global markets, said: 'In the end, the weakness of the franc will be over only when the Germans start cutting rates.'

The need for lower rates was driven home by official French figures showing a 1.9 per cent fall in industrial production in the first quarter from the fourth quarter of 1992.

The key measure of British companies' cost competitiveness deteriorated in June to its worst level for six months, Department of Employment figures showed.

Unit labour costs in manufacturing - the amount spent on wages and salaries to produce each unit of output - were 2 per cent lower in June than a year earlier. This was the smallest fall since the year to December and down from 4.7 per cent in the year to May.

Manufacturing productivity - output per person employed - rose by 6.8 per cent in the year to June, down from 9.9 per cent in the year to May and the lowest annual increase for six months.

The pound closed a quarter of a cent lower at dollars 1.4590 and nearly 2 pfennigs lower at DM2.4978.

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