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By Anne D. Picker, International Economist, Econoday     Monday, May 19, 2003

Currencies
Senior Japanese ministers have stepped up their rhetoric saying that the current level of the yen is not justified by Japan's economic fundamentals. Japan is wary of any U.S. signal that it is prepared to let the dollar weaken. Many economists say that if the dollar stays below Y115 against the yen, Japanese exports will stall and the economy could sink back into stagnation. The provisional gross domestic product data showed that the economy has already stalled as a result of the strengthening yen. The officials were particularly concerned by the ongoing remarks of Treasury Secretary Snow concerning the U.S. dollar. Currency market traders are convinced that the U.S. doesn't mind if the dollar is allowed to weaken despite U.S. claims that it still has a strong dollar policy.

The yen tested two-year highs against the dollar Thursday as investors continued to push the U.S. currency lower, challenging the Japanese authorities' resolve to stem yen strength. The dollar moved up from lows in the week amid reports that the Bank of Japan was intervening again to cap the yen's rise. The BoJ has not confirmed any action in the market this month. Strategists said there was no one reason to explain the dollar's renewed weakness, but noted that although it has steadied, sentiment towards the currency remains bearish.

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