A rapid decline in the value of the yen will threaten Hong Kong's economy because the Hong Kong dollar's tie with the US dollar will come under renewed pressure, according to Indocam strategist Miron Mushkat. 'If the yen falls to 150 to 160 against the US dollar in 1998, then there is not enough time [for Hong Kong] to adapt,' said Mr Mushkat, whose own forecasts put the yen in a range of 130 to 140 against the dollar this year. The yen has slipped nearly 9 per cent from its year's high of 122.01 against the dollar in February. A move to 150-160 yen translates into a further 12 to 20 per cent retreat from its current level of about 133. A rapid yen drop - which Mr Mushkat conceded was seen as likely by many economists as the Japanese economy remained weak - would spark a fresh round of regional currency turmoil, pressuring the Hong Kong Monetary Authority to bolster the Hong Kong dollar. It would also heighten pressure on the mainland to devalue the yuan, a course that Beijing would follow only in extreme circumstances, he said. Beijing has repeatedly stated it will not devalue, fearing that it may trigger further currency turmoil. 'There will be a higher level of economic discomfort [if the yuan is devalued], but I don't think Hong Kong will walk away from the peg,' Mr Mushkat said. 'The consequences of walking away are far worse,' he said. Mr Mushkat said Japan's economic growth would bottom in the summer, but that further stimulus measures would be needed before the yen rebounded. His comments came yesterday in a speech to the American Chamber of Commerce in which he defended Hong Kong's currency-board system. Mr Mushkat said if the peg broke, it would harm Hong Kong's role as a major trading centre and lead to a more interventionist monetary policy. He said that Hong Kong's economy was flexible enough to deal with major external stresses, including continued erosion of the yen, assuming they did not come too quickly. Last month, Japan's foreign reserves plummeted US$17.8 billion to $205.7 billion as Tokyo intervened aggressively to support the yen.