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Bonds and dollar both gain
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July 6, 1998: 9:33 a.m. ET
New questions about Japanese market stimulus drive investors to safe havens
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NEW YORK (CNNfn) - Bond prices, set to move in lockstep with the dollar this week, opened higher Monday as doubts began to swirl about whether Japanese plans for economic stimulus through tax cuts will come to reality.
The 30-year Treasury issue leapt 10/32 of a point in price, with the yield on the long bond falling to 5.57 percent.
On Friday, remarks by Japanese Prime Minister Ryutaro Hashimoto suggested to markets permanent tax cuts might be on the way. But Sunday, he put that speculation to rest.
Anxious investors, without a clear sign of a rebounding Japanese economy, tend to turn to safe havens such as U.S. bonds. That boosts demand for dollars.
Tax cut stimulus, which could revive the Japanese economy by encouraging consumers to spend more, also could spark the yen to rise.
U.S. bonds also thrive from a lower yen because it keeps prices for Japanese imports down for American consumers.
The yen has been hovering in a 140-to-the-dollar range in recent sessions. Early Monday the yen was off 0.07 at 140.21.
"There is always going to be disappointment with the reform package," in Japan, said Dave Durrant, global strategist at I.D.E.A. "There is no quick fix with the Japanese, it's going to be slow and plodding."
The yen isn't the only currency flailing against the dollar of late.
The South African rand has been under pressure from speculators who see reserves there dwindling. Market confidence is also flagging over the naming of South Africa's labor minister as its new central bank chief, said Durrant.
The rand dropped as low as a 6.75 to the dollar Monday, a record low, before bouncing back up slightly amid sales of dollars. Durrant said he sees the rand hovering in a band of 6.50-7.00 to the dollar.
The German mark rose against the dollar as investors turned to the mark as the European currency of choice due to signs of weakness in Great Britain.
(Click here for CNNfn's Cross Rate tracker)
Durrant said signs of budding "stagflation" in Britain and weak industrial output there pulled down the British pound versus the mark.
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