The yen was lower in late morning trade as the domestic stockmarket slumped on a combination of concerns over domestic banks and the economy, as well as a broader global slump in equities, dealers said. Domestic shares have fallen sharply since the appointment of Heizo Takenaka as head of the Financial Services Agency, who has outlined a radical plan to reform the banking sector that could cause huge bankruptcies and unemployment. "The local media is calling it the 'Takenaka Show'. The cure is going to kill the patient," said Ryohei Muramatsu, head of group treasury for Asia at Commerzbank. "He should consider the condition of the Japanese economy. It's rather sick. This is the reason the yen is weak," he added.
The Bank of Japan is asking the government to inject public funds into the banks if they become under-capitalized, with the policy to be finalised at the second day of its board meeting tomorrow, a newspaper report said this morning. Muramatsu said the move is in line with the bank's previous policy and could calm domestic financial markets, while the Finance Ministry may be more worried over equity falls than trying to boost the economy through a weak yen.
"The ministry stance has changed. A weaker yen will damage foreign investors and so many foreigners are selling Japanese assets and stocks," he said. Nevertheless, the dollar faces only weak immediate resistance at 123.60 and 123.75 yen, with fair support at 123.20 and 123.00 yen, he added.//www.ananova.com