Dollar falls to 13-year low against yen
TOKYO -- In yet another blow to Japan's contracting economy, the dollar tumbled to a 13-year low against the yen Friday on investor dismay over the U.S. Senate's rejection of a bailout for the ailing American auto industry.
The dollar's fall to as low as 88.12 yen — the lowest since August 1995 — puts additional pressure on Japan's exporters, whose overseas earnings shrink as the dollar weakens against the yen. Already, major manufacturers like Toyota and Sony have slashed earnings forecasts amid waning global consumer demand, and Sony and Sharp have announced job cuts.
News of the demise of the $14 billion auto industry bailout and the yen's surge together triggered a big afternoon sell-off on the Tokyo stock market and once again underscored Japan's vulnerability to foreign exchange volatility.
The dollar later recovered to above 90 yen, but remained under the 91.43 yen mark from late Thursday. The benchmark Nikkei 225 stock average shed 5.6% to 8,235.87.
Alarmed, Japanese authorities warned that Tokyo might intervene in the currency market to buy dollars if the yen fails to cool off.
A senior financial ministry official described foreign exchange fluctuations as "too volatile," according to Kyodo news agency. "We will closely monitor the situation in the market and take appropriate actions," Kyodo quoted the unnamed official as saying.
Japan's export-oriented economy is inextricably tied to the U.S., and investors have been closely following the political developments in Washington.
"The automobile sector is a fundamental industry for both the U.S. and Japan, and a failure would be a major blow to Japan as well," said Nagayuki Yamagishi, an equities strategist at Mitsubishi UFJ Securities in Tokyo.
The rescue package sought by Detroit's ailing automakers was earlier approved by the House of Representatives but unraveled in the Senate. Bipartisan talks broke down over Republican demands that the unions agree to steep wage cuts by 2009 to bring their pay into line with U.S. plants of Japanese carmakers.
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