Yen climb worries Tokyo

Japan's currency, the yen, is continuing to advance despite efforts by the authorities in Tokyo to take the edge off its recent gains.

Friday brought some slight relief as the yen slipped a tenth of a cent lower against the dollar.

But after a rise of 5% in the two months to mid-May, the current level of a little more than 118 yen to the dollar and the underlying trend means currency dealers say the pressure is still on.

The rise is hardly good news for Japanese exporters, on whom - given stubbornly falling prices and weak domestic demand - Japan is relying to avoid economic meltdown.

Unemployment is sky-high by Japanese standards, as new figures on Friday revealed. A near-record 5.4% of the workforce is without a job, with the worst-hit being the young, crippling the chances of a rise in consumer spending.

Mixed signals

The yen's troubles are concentrating minds in Tokyo.

Credit rating agencies have downgraded Japanese government bonds to below those of Botswana... Yet why doesn't the yen depreciate?

Junichiro Koizumi
Japanese prime minister

While the official line is that heavy-duty intervention is not necessary, behind the scenes lies deep concern about recent hints from the US that the administration wants to see the dollar weaken.

With the US budget deficit spiralling to unheard-of levels, any hint that dollar assets are going to lose value is enough to drive some investors elsewhere, dealers said.

The US insistence that this weekend's G8 summit in France will see a reiteration of support for a strong dollar is not cutting much ice.

In the meantime, the Japanese are beginning to counter-brief.

Even Prime Minister Junichiro Koizumi is getting in on the act, reports say.

"Given the current state of the economy, Japan's currency should be weaker," the Financial Times newspaper reported Mr Koizumi as saying to a group of reporters on Thursday.

"Credit rating agencies have downgraded Japanese government bonds to below those of Botswana. Yet why doesn't the yen depreciate?"