Yen Falls to 8-Year Low

TOKYO — The Japanese yen fell to an eight-year low against the U.S. dollar Tuesday as more bad news battered the archipelago and left many in Japan and beyond wondering when the free fall would finally end.

“Japan used to have such a strong currency that we thought it would become a new global standard,” said Tadanori Yoneyama, a retail executive in Tokyo. “Now it’s sad to know the rest of the world doesn’t have much trust in us.”

The yen hit a low of 147.64 per dollar in Tokyo on Tuesday from 146.15 in New York on Monday. In New York late Tuesday it ended at 147.35. Early today in Tokyo, the yen strengthened somewhat, to 146.05.

Tuesday’s slide came as Japan’s Economic Planning Agency painted a scene that surprised few. The nation’s ailing economy is now “slumping” rather than “stagnant,” EPA said, conceding that an earlier $109-billion stimulus package has failed to stimulate much of anything.

The impression of economic disarray gained further credence as Japan’s increasingly vocal political opposition vowed to put its own mark on any bank cleanup plan submitted by the new government of Prime Minister Keizo Obuchi, raising the prospect of more infighting and indecision ahead.

The yen’s fall--and growing belief that this may be nowhere near the bottom--also fueled concerns that Japanese exporters, armed with ever more competitive currency levels, would force Hong Kong and China to devalue their currencies.

But in Beijing, officials reiterated that they have no plans to devalue. China argues that devaluation would cause more problems than it solves, and apparently believes the United States will step in again to prop up the yen.

The dubious eight-year benchmark achieved by the yen Tuesday prompted some to stop and consider what progress the world’s second-largest economy has made since the last time the yen hit 147.

“Close to nothing,” said Jim O’Neill, Goldman Sach’s currency economist in London. “Japan will be hoping that when one looks through the history books, the 1990s have been torn out. They’ve not been kind to Japan.”

The last time Japan’s currency was this low, the Gulf War was just heating up, driving oil prices sharply higher and sending jolts through resource-poor Japan. Even more devastating to the Japanese economy at the time, however, were interest rates as high as 8% for short-term loans.

Although Japan’s current fear of downward price spirals may seem a world away--the Bank of Japan decided Tuesday to leave the official discount rate at a rock-bottom 0.5%--policymakers at the beginning of the decade were trying to beat back domestic inflation as they sought to softly deflate the 1980s bubble.

That speculative era even brought an apology Tuesday from Finance Minister Kiichi Miyazawa--who has come full circle after holding the same post in the late 1980s--for not preventing the bubble. Opposition politicians this week have been calling Miyazawa a “war criminal.”

“We had such a good time during the bubble,” retailer Yoneyama says. “Now we are paying the price.”

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Etsuko Kawase in the Tokyo bureau contributed to this report.

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