Low Japan rates prop up greenback

ANALYSTS expect the dollar to fall against the deutschemark in coming days - as the mark rises relative to other European currencies - but to strengthen against the yen as Japanese interest rates are not expected to rise in the near future.

In late New York trading on Friday, the dollar was quoted at 1.4777 marks, little changed from 1.4770 marks a week earlier and at 108.26 yen, up from 106.81 yen.

'Fundamentally, the dollar should be higher,' said Ron Simpson, currency trader at the Industrial Bank of Japan. 'We've got good growth with very low inflation. But any gains by the dollar against the mark are quickly given up.' The mark rose against other currencies on Friday, amid concern that Europe's plans for a single currency may be delayed.

Doubts about European monetary union have flared intermittently over the past four years, and traders are now speculating that France will be unable to cut its budget deficit enough to qualify for entry.

That concern helped drive the French franc to a four-month low against the mark and took its toll on other European currencies, such as the Italian lira.

The mark climbed to 3.4237 francs on Friday, its highest since March 28 and up from 3.3959 francs a week ago.


When the mark gains on other European currencies it often rises against the dollar as well.

But traders and analysts said there were prospects for a US rebound late this week.

Traders said last week that the French central bank had been selling marks and was expected to continue doing so.

'If the Bank of France succeeds in defending the franc, the dollar will gain against the mark,' said Kevin Harris, analyst at the consulting firm MCM Currencywatch.


John Rothfield, currency strategist at NationsBanc-CRT in Chicago, said the dollar could reach 1.49 or 1.50 marks next week. He and others also said the dollar would likely rise against the yen, amid growing sentiment that the Bank of Japan (BOJ) will not raise interest rates soon.

On Wednesday, BOJ governor Yasuo Matsushita said the central bank would keep rates low because Japan's recovery remained sluggish.


'The market has finally decided to listen to what these guys have been saying for any number of weeks now,' said Ian Spence, currency trader at Rabobank Nederland.

The BOJ's discount rate has been at a record low of 0.5 per cent since last September.