Yen Falls Against the Dollar as the Rally Ebbs

TOKYO — Less than a month after the yen breached 100 to the dollar, celebrated as a milestone for this export-loving economy, the yen is back on the wrong side of that symbolic threshold. Shares traded in Tokyo have lost 15 percent of their value since May 23, as a euphoric rally suddenly gave way to nerve-racking market swings.

It is still too early to tell whether the recent southward turn in Japanese markets is a temporary correction, or whether it is the end of the road for a spectacular rally that seemed to foreshadow a resurgence of the Japanese economy after years of deflation and disappointing growth.

But the market retreat reflects a growing anxiety among investors over the program of bold monetary stimulus, fiscal spending and economic reforms instituted by Prime Minister Shinzo Abe, intended to help Japan break out of its economic stupor. The yen, made weaker by these policies, made Japanese exports more competitive globally.

“Until May 23, all attention was on how far the market could rise. But within a week, everyone is talking about how far it could fall,” Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, wrote in a research note published Monday.

The wild market gyrations, Mr. Fujito said, threatened to make predictions from even the most seasoned of market experts almost meaningless.

“Turning to analysts who said just a week ago that stocks might rise to 18,000, or 20,000, is hardly an effective mood-stabilizing move,” he said. At times like these, investors might be wise simply to “wait and see.”

Early Tuesday in Tokyo, the Nikkei 225 index, which is trading around 13,000, slipped 0.5 percent in the opening minutes before a slight rebound, then appeared to lose direction, slinking back into negative territory.

On Monday, the index fell 3.7 percent, the fourth rout in eight days. The dollar was trading at 99.43 yen, after the Japanese currency strengthened overnight, crossing over the 100 yen mark against the dollar for the first time since early May.

Other, immediate factors have propelled recent market moves, analysts say, including comments from United States Federal Reserve officials that seemed to suggest a tightening of monetary policy later this year; a rise in long-term interest rates in both the United States and Japan; profit-taking by overseas hedge funds and other foreign investors who had piled into Japanese equities; and high-frequency trading that has magnified market swings.

But there has also been an increasingly cold-eyed analysis of the risks of Mr. Abe’s economic push. Japan’s central bank has seemingly been caught unaware by volatility in long-term interest rates, brought about by its pump-priming and large-scale purchases of government bonds.

The government pushed through a sizable budget last month, but in the eyes of many investors, that is more of the same from a country that has long poured money into public projects, staving off a deeper decline but with little to show toward long-term, sustainable economic growth.

Article source: http://www.nytimes.com/2013/06/04/business/global/yen-falls-against-the-dollar-as-the-rally-ebbs.html?partner=rss&emc=rss