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Thursday, September 16, 1999 Published at 12:28 GMT 13:28 UK

Business: The Economy

Rift widens on yen

The yen is gaining ground against the dollar daily

Japan's policy rift over the yen widened on Thursday after a crisis meeting between Bank of Japan governor Masaru Hiyami and Finance Minister Kiichi Miyazawa.

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The two met in a Tokyo hotel, on neutral ground, to "match views" on what could be done to stem the rise of the yen, which threatens to derail Japan's still fragile economic recovery.

But they failed to agree any further measures to stimulate the economy or curb the currency, with Mr Hiyami maintaining that his zero-interest rate policy was providing enough money to fuel economic growth.

Mr Miyazawa is dispatching his top international deputy, Haruhiko Kuroda, to Washington to discuss the possibility of international cooperation to stabilise the yen.

But there is little sign that US Treasury Secretary Lawrence Summers is prepared to agree to such a move, which would benefit Japanese companies at the expense of US manufacturers.

Former vice-minister for international finance, Eisake Sakikabara, "Mr Yen", said he thought the Bank of Japan should join the push to stabilise the yen.

Yen strength

Markets believe that without such intervention, the yen will continue to strengthen.

It surged again overnight, prompting a big sell-off in shares on the Tokyo stock market.

By 0947GMT it was trading at 104.20 to the dollar as against 105.06 the previous day.

And the Nikkei index of leading shares dropped nearly 3% as investors worried that big Japanese export companies would be hurt by the high yen, which means their goods cost more in foreign markets.

Since June, the yen has risen by 13% against the dollar as investors have ploughed money back in Japan in the hopes of stock market gains.

More spending

The strong yen could jeopardise the electoral hopes of Mr Obuchi and his LDP party.

The Japanese government has already pledged to boost spending to further the recovery.

Now it may have to spend even more - putting it in further conflict with the Bank of Japan, which has refused to increase its purchase of bonds to fund the growing deficit.

"They will spend more money - this gives the government an excuse and with an election coming up, they will use every possibility to pump up the stimulus package," said Ron Bevacqua of Commerz Securities.

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