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Tuesday, June 16, 1998 Published at 17:10 GMT 18:10 UK

Business: The Economy

Europe, US survive Yen rollercoaster

What's the yen price? Buy or sell?

Financial markets in Europe and the United States managed to stay calm on Tuesday, bucking the trend set in Asia where share prices went on a ride on the wild side as they mirrored the Japanese yen's up-and-down movements.

[ image: The yen's wild ride began in New York]
The yen's wild ride began in New York
Asia's market spin began on Tuesday morning when the US dollar plummeted from an eight-year high of ¥146 down to ¥142.80, a knee-jerk reaction to Wall Street's 207 point plunge the day before.

However, the sudden strength of the yen was not triggered by a change in economic fundamentals, but US funds which were trying to take profits after several Japanese government leaders had called for more action to counter the yen's weakness.

Noriko Hama, Chief Economist Mitsubishi Bank, and Michael Hughes, Barings economist, discuss the reasons for Asia's crisis
The yen's rebound lasted long enough to pull several Asian markets into positive territory, but these gains and the yen's strength quickly evaporated and share prices began to tumble again. Later on Tuesday the yen was trading at around ¥144 to the dollar.

European stock markets and Wall Streets escaped the selling frenzy. Analysts said shares had fallen too far on Monday, and this helped stabilise prices today.

Paris and London managed small gains, 7.95 and 14 points respectively, while Frankfurt's Dax was in a bit more bullish mood, ending the day up 64 points or 1%.

In New York, the Dow rallied briefly, gaining 47, then dropped sharply by 100 points, and at lunchtime local time stood at 8637, up 9.

Troubled Asia

[ image: The yen stood at ¥115 to the dollar a year ago]
The yen stood at ¥115 to the dollar a year ago
The day's turmoil had started in Tokyo, where the Nikkei Index first dropped below this year's closing low. As the yen recovered, so did Tokyo share prices. But finally Japan's currency went on the slide again, taking the Nikkei with it. The index ended 104.79 points lower at 14,720.38.

These gyrations did little good for the region's other markets:

  • In New Zealand, the key NZSE-40 capital index dropped nearly 1.5% to finish at its lowest level since over three years, dragged down by a weakening local currency and a significant increase in domestic interest rates.
  • In Australia, the All Ordinaries Index was down 1.2% at 2,536.6 at midday, as the Australian dollar touched a 12-year low against the U.S. dollar in early trading.
  • The Philippine Stock Exchange took yet another drubbing, its key index dropping 2.4% to 1705.14 points.
  • Malaysia's benchmark index also plunged 2.6% as Kuala Lumpur's stock exchange traded at around 440 points.
  • No respite in Indonesia either as Jakarta's stock market lost just under 1% in early trading.
  • Hong Kong staged a rebound as the US dollar weakened, but slipped back as the yen gave ground. The Hang Seng closed with a gain of just under 64 points at 7,526.45.
  • Seoul's market mirrored the Nikkei's up-and-down movements, as South Korea's won is in direct competition with the yen. Encouraged by the yen's stronger performance the Seoul stock market managed to narrow earlier losses and closed the morning session 0.8% lower at 285.42.
  • And in Singapore shares plunged as well, as fears about soaring interest rates kept investors out of the market. In the morning, the Straits Times Industrials Index plunged 1.9%.

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