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Weaker Dollar Sparks Concern in Asia


The dollar is hovering around a nine-month low against the Japanese yen, and is trading lower against other major currencies around the world and across Asia. The weakening dollar and worries over the United States' financial health have emerged as key concerns for the Asian economy.

The Bank of Japan sold an estimated $25 billion worth of yen this month, trying to stem the dollar's slide. Taiwan has also intervened in the market heavily.

The greenback has fallen 10 percent against the Japanese yen since April and is trading around a 28-month low on the euro. Since the start of the year the dollar is down about 19 percent against the Indonesian rupiah, 10 percent versus the Korean won, four percent versus the Taiwan dollar and two percent lower against the Philippine peso.

Jesper Koll, an economist with investment bank Merrill Lynch in Tokyo, said "basically, the dollar has a broad-based decline and the reason is very straight-forward. Global investors, particularly Japanese, and Asian investors, are very concerned about the U.S. economic and credit outlook, and as result of that you have got repatriation of assets. Keeping money at home rather than far away seems to be a better bet right now."

Slowing earnings growth, concerns over terrorism and revelations that some American companies inflated their books are damaging investors' confidence in the dollar, as well as in U.S. equities.

Economists such as Mr. Koll say that Asian governments fear these woes will sap consumer demand in the United States, Asia's key trading partner. In addition, a weaker dollar makes imports more expensive in the United States, cutting demand for them.

"The worry is that if indeed the American economy is slowing down sharply, if indeed America were to enter a double-dip recession, that would be much more dangerous for Japanese and Asian economies," said Mr. Koll. "Because when you look at the statistics, when you do the analysis, it is export volume, the actual demand for Asian and Japanese products, that is much more significant than just the ups and downs of the exchange rate."

Some currency traders suggest Japan, Singapore and South Korea may step into the currency markets at one time to buy dollars. Such a move to support the dollar would be a first, but analysts say it is possible because cooperation among the region's central banks has greatly increased since the 1997 Asian financial crisis.

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