Word: yen
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Japan: land of the rising yen, unstoppable economic growth and perpetual bullishness. That was the image that emerged in the 1980s, as Japan's financial juggernaut rolled forward with seldom a pause or a setback. The most striking symbol was Tokyo's stock market, which consistently scaled heights that seemed unattainable by any global standard. Property values rose astronomically, yet inflation was virtually nonexistent. The money machine kept churning, as if powered by some magic force, difficult to fathom and nearly invulnerable to financial stresses and strains in the rest of the world...
...Jones average fell 37 points last week, to close at 2704.28, reflecting concern that bearish Japanese investors could pull back on their U.S. holdings. The Japanese Finance Minister, Ryutaro Hashimoto, declared on Friday that he was "extremely concerned" about the drop of the Tokyo market and the yen, which has fallen 7% against the dollar since mid-February. At week's end Hashimoto met in Los Angeles with his American counterpart, Treasury Secretary Nicholas Brady, to seek support in stabilizing the Japanese currency...
...weak yen has been a prime culprit in Japan's trouble, raising the threat of inflation and putting upward pressure on interest rates. The yen has sagged largely because of the quickening outflow of Japan's immense cash hoard to other countries, where Japanese investors have found investments more lucrative or stable than at home. Says Nomura's Koo: "We got into this mess because Japanese investors were always moving money abroad." Example: Ito- Yokado, a Japanese supermarket chain, agreed last week to pay $400 million for a 75% stake in Southland Corp., the Dallas-based operator...
Political instability at home has undermined the yen as well. Prime Minister Toshiki Kaifu, 59, who is outside the Old Guard of the ruling Liberal Democratic Party, lacks the political support to serve as a bold leader. "That poor gentleman," says one Japanese bureaucrat. "They are all trying to sink him. He gets no help." While Kaifu is moderately popular, he ! is not seen as someone who can dramatically improve relations with the U.S. or boost Japan's influence in the world. Says a disappointed financier: "Japan has not emerged as the superpower that it was expected...
During the 1980s, the Japanese spoke of the "Triple Merits" that were driving the Tokyo stock market's extraordinary rise: a strong yen, low interest rates and falling oil prices. Now that the Tokyo market is on a rocky slide, investors have labeled the culprits the Triple Demerits: a weakening yen, growing inflation and rising interest rates. The triple whammy has sent the Nikkei index down nearly 15% so far this year. In one session last week the index dived 1,569 points, or 4.5%, the biggest one-day loss since the 1987 crash. The index lurched up and down...