THE Japanese yen broke through a key barrier 105 to hit a four-year high against the US dollar yesterday, as months of sustained intervention by the Bank of Japan (BoJ) in the foreign exchange markets gave way to market forces.
Widespread speculation that the BoJ would finally be scaling down its heavy interventions in the forex markets today at the start of Japan's new business year fuelled a wave of dollar-selling by US hedge funds.
Also, expectations that the quarterly tankan business survey, to be released today, would show that the recovering Japanese economy would do even better gave an added boost to the yen, pushing it above what was previously considered the tolerance threshold of 105 against the US dollar.
At press time, the greenback had fallen to 103.45 yen, the lowest since April 2000, while brisk early trading in Europe indicated a rough ride ahead for the dollar as it continued to face selling pressure.
The euro, too, lost ground against the Japanese currency, touching a new four-month low in late Asian trade yesterday.
The BoJ has spent some 30,000 billion yen (US$284bil) over the past year to prevent a strengthening yen that could jeopardise its export-led economic recovery. Official data showed Japan expensed 4,700 billion yen in March, bringing its intervention since the start of the year to more than 15,000 billion yen. That followed a record 20,000 billion yen in calendar 2003.
But the absence of the BoJ in the forex market when the yen rose from an overnight low of 105.91 yesterday prompted speculation that the Japanese authorities could be willing to allow a freer float.
Japan's Finance Minister Sadakazu Tanigaki has denied any such plan, but the markets did not appear to believe him.
Our basic stance has not changed, that it is desirable for exchange rates to reflect fundamentals. When that is not the case we will do what we have to do, he was quoted by Reuters as saying.
The rising yen, analysts say, could have some impact in Malaysia, for example, on companies in the motor sector where the Japanese import content is high. Others like Tenaga Nasional Bhd could be affected because they carry substantial yen-denominated borrowings.
OSK Research head Pankaj Kumar said it was too early to assess the long-term impact on Malaysias economic growth, although he did not think it would adversely affect future price inflation.
The ringgit, pegged at 3.8 to the US dollar, has similarly fallen against the yen.
Earlier this year, Malaysian Institute of Economic Research executive director Dr Mohamed Ariff Abdul Kareem said one of the breaking point indicators that could trigger a review of the ringgit peg against the greenback could be the yen strengthening to below 100 to one US dollar, a point that is becoming perilously close.
Other breaking point indicators include the greenback touching US$1.40 to the euro, and the revaluation of the Chinese yuan.
Dresdner Klienwort Wassersteins director of forex strategy, Adrian Foster, said recently he expected the yen to rise to 95 per US dollar by year's end.
Elsewhere in Asia, regional currencies followed the yens ascent. The South Korean won touched 1,150 per dollar for the first time since October 2003, while the new Taiwan dollar closed at a 21-month high.
The Singapore dollar hit a six-week high of 1.678 per US dollar as the yens surge triggered orders to sell dollars against other Asian currencies that were expected to hold their gains if the yen proved resilient.
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