Asian Stocks and Dollar Fall Sharply

Asian stocks fell sharply and the U.S. dollar fell to levels not seen for three years against the Japanese yen on Monday, on speculation the Federal Reserve board may lower rates further to soften a possible recession. At the start of trading in Europe, most stocks were showing moderate losses.

The Nikkei 225 Stock Average slumped 610.84, or 4.49 percent to end trade at 12,992.18, the lowest close since Jan. 23. Japanese stocks have fallen approximately 15 percent since the start of the year. The Hang Seng Index was down about 3 percent in late trading; it has also declined 15 percent this year, while the CSI 300 Index has fallen 11 percent.

The dollar fell to 102.72 yen at one stage, the lowest level since Jan. 28, 2005, and dipped to $1.5228 against the Euro, near the $1.5239 set on Friday, which was the lowest since the common European currency’s debut in January 1999.

Concerns United States consumers may no longer be able to afford exports from the region also weighed on Asian stock markets. Exports of finished products to the United States, such as televisions and video cameras, make up between 5 percent and 10 percent of the Gross Domestic Product of the countries of East and South East Asia, said Yutaka Harada, chief economist with Daiwa Institute of Research in Tokyo.

The fortunes of the Asian economies remain closely tied to those of the U.S., he added. “U.S. growth declines by 1 percent, Asian exports to the U.S. will likely fall 2 percent,” Mr. Harada said. “And that may reduce economic growth in the region by about 0.3 percent.”

Japanese economic growth may be reined in to 1.7 percent for 2008, from about 2 percent last year, he added.

U.S. exports account for 10 percent to 15 percent of the Chinese economy, but growth rates around 10 percent provide a bigger cushion against any cutbacks in buying by U.S. consumers, Mr. Harada said.
For every yen the dollar softens, Sony Corporation faces potential losses of 6 billion yen (approximately $57.6 million) on its U.S. exports of electronic goods, including Handycam movie cameras and Cyber-shot still cameras, said Shusuke Kanai, senior manager of corporation communications at the Tokyo based company.

The Japanese government downgraded its economic judgment for the first time in 15 months in February, saying growth may moderate as exports and output slow.

While nearing the psychologically important 100 yen level, the dollar is unlikely to fall below that level, said Koji Fukaya, analyst with Deutsche Securities Inc. in Tokyo. Investors selling the dollar are doing so as poor economic data out of the U.S makes them more averse to risk, he said.

“Though risk sensitive investors are selling the dollar, there is no real reason to buy the yen, and that should prevent a dip below 100 yen,” he said. “I feel the dollar decline is very close to running its course.”
On Feb. 29, the National Association of Purchasing Management-Chicago reported business activity at its lowest level in more than six years.

Most analysts expect the U.S. central bank to cut its target for Federal Fund rates further following statements made by Chairman Ben S. Bernanke to Congress last week.

The key rate stands at 3 percent, down from 5.25 percent in June 2006, and Mr. Harada sees the possibility it may end 2008 at 2.5 percent.