SGD to go down the drain!
<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published October 25, 2008
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Yen soars to 13-year peak against US dollar
Investors unwind yen carry trades amid worsening global turmoil; euro also hit
By ANTHONY ROWLEY
IN TOKYO
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THE yen hit a 13-year high against the dollar and a six-year peak against other leading currencies yesterday as investors scrambled to unwind overseas positions in the face of deepening global financial turmoil.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>MARKET JITTERS
Japanese stocks were dumped wholesale on fears that the surging yen will eliminate Japan's already fast-shrinking trade surplus and push the economy into severe recession</TD></TR></TBODY></TABLE>Stock markets were also in shock and Japanese stocks were dumped wholesale on fears that the surging yen will eliminate Japan's already fast-shrinking trade surplus and push the economy into severe recession.
On Wednesday, flagship Japanese exporter Sony halved its operating profit forecast for 2008, blaming falling global demand and a strong yen. Fearing that many more Japanese firms will slash their profit forecasts, investors fled the Tokyo stock market yesterday, leaving Sony shares down 14 per cent and the Nikkei 225 average 10 per cent or 811.90 points lower at 7,649.08, its lowest closing since April 2003.
Japanese Prime Minister Taro Aso, in Beijing for a meeting of leaders from 43 Asian and European nations, voiced alarm over the violent fluctuations in currency and stock values and the damage these are likely to do to the real economy. The crisis was top of the agenda at the ASEM meeting, but markets crumbled across the region as fears grew that governments can do little now to stem the rout.
Japanese and other investors continued to unwind yen 'carry trades' - whereby yen are sold to finance investment in higher-yielding currencies - pushing the yen up 2.5 per cent to around 95 to the dollar, its highest since 1995. The yen also jumped more than 2 per cent to a six-year high of 122.75 to the euro while against the Australian dollar - a favourite currency for carry trade speculation - the Japanese currency roared 8 per cent higher.
Currency repatriation by distressed companies and financial institutions is largely accountable for the dollar's strength in the face of the financial crisis, analysts said, while in Japan's case the yen's surge is attributable mainly to the unwinding of a mountain of speculative currency positions built up in recent years. The euro and the pound, on the other hand, are slumping in value.
On Thursday, Japan's finance ministry announced that the country's trade surplus for September was 95 billion yen (S$1.5 billion) rather than the near 550 billion yen most economists had looked for, and was 94 per cent down compared with the 1.6 trillion yen surplus logged in September 2007. With little expectation that the yen will decline in the near future and demand for Japanese exports declining around the globe, economists say that the trade surplus is set to plunge further, snuffing out the only engine of growth in the economy.
High import costs are also responsible for the dramatic drop in the trade surplus and some relief is looked for on this front in the coming months, although analysts warned that the sharp drop in oil prices could come to an end if Opec nations follow through on their threat to cut output.
Bank of Japan governor Masaaki Shirakawa said yesterday that inflation may subside if commodity prices keep falling, but that was seen as scant consolation in the face of recession.
Mr Aso is expected to give priority to assembling a new government stimulus package for the economy when he returns to Tokyo at the weekend. This could include substantial tax cuts, especially for mortgage holders, as well as spending on public works projects such as infrastructure, Japanese media speculated yesterday.
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<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published October 25, 2008
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Yen soars to 13-year peak against US dollar
Investors unwind yen carry trades amid worsening global turmoil; euro also hit
By ANTHONY ROWLEY
IN TOKYO
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>THE yen hit a 13-year high against the dollar and a six-year peak against other leading currencies yesterday as investors scrambled to unwind overseas positions in the face of deepening global financial turmoil.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>MARKET JITTERSJapanese stocks were dumped wholesale on fears that the surging yen will eliminate Japan's already fast-shrinking trade surplus and push the economy into severe recession</TD></TR></TBODY></TABLE>Stock markets were also in shock and Japanese stocks were dumped wholesale on fears that the surging yen will eliminate Japan's already fast-shrinking trade surplus and push the economy into severe recession.
On Wednesday, flagship Japanese exporter Sony halved its operating profit forecast for 2008, blaming falling global demand and a strong yen. Fearing that many more Japanese firms will slash their profit forecasts, investors fled the Tokyo stock market yesterday, leaving Sony shares down 14 per cent and the Nikkei 225 average 10 per cent or 811.90 points lower at 7,649.08, its lowest closing since April 2003.
Japanese Prime Minister Taro Aso, in Beijing for a meeting of leaders from 43 Asian and European nations, voiced alarm over the violent fluctuations in currency and stock values and the damage these are likely to do to the real economy. The crisis was top of the agenda at the ASEM meeting, but markets crumbled across the region as fears grew that governments can do little now to stem the rout.
Japanese and other investors continued to unwind yen 'carry trades' - whereby yen are sold to finance investment in higher-yielding currencies - pushing the yen up 2.5 per cent to around 95 to the dollar, its highest since 1995. The yen also jumped more than 2 per cent to a six-year high of 122.75 to the euro while against the Australian dollar - a favourite currency for carry trade speculation - the Japanese currency roared 8 per cent higher.
Currency repatriation by distressed companies and financial institutions is largely accountable for the dollar's strength in the face of the financial crisis, analysts said, while in Japan's case the yen's surge is attributable mainly to the unwinding of a mountain of speculative currency positions built up in recent years. The euro and the pound, on the other hand, are slumping in value.
On Thursday, Japan's finance ministry announced that the country's trade surplus for September was 95 billion yen (S$1.5 billion) rather than the near 550 billion yen most economists had looked for, and was 94 per cent down compared with the 1.6 trillion yen surplus logged in September 2007. With little expectation that the yen will decline in the near future and demand for Japanese exports declining around the globe, economists say that the trade surplus is set to plunge further, snuffing out the only engine of growth in the economy.
High import costs are also responsible for the dramatic drop in the trade surplus and some relief is looked for on this front in the coming months, although analysts warned that the sharp drop in oil prices could come to an end if Opec nations follow through on their threat to cut output.
Bank of Japan governor Masaaki Shirakawa said yesterday that inflation may subside if commodity prices keep falling, but that was seen as scant consolation in the face of recession.
Mr Aso is expected to give priority to assembling a new government stimulus package for the economy when he returns to Tokyo at the weekend. This could include substantial tax cuts, especially for mortgage holders, as well as spending on public works projects such as infrastructure, Japanese media speculated yesterday.
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