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Dollar slide vs

yen in late trade

TOKYO: The dollar skidded against the yen in late Tokyo in response to plunges in the Japanese government yen bond and stock markets, hurt by the Bank of Japan governor's remarks about its past easy credit stance.

Some operators in Tokyo financial markets took his remarks as another sign that the BOJ may be reluctant to maintain an easy credit stance over a long period in the future.

BOJ Governor Yasuo Matsushita said on Tuesday that a prolonged easy monetary policy contributed to the creation of Japan's "bubble" economy of inflated stock and land prices in the late 1980s.

Asked at the Upper House budget committee about the central bank's responsibility for causing the "bubble" economy, Matsushita said: "I cannot deny that the prolonged easy credit policy played a part (in creating such a situation)."

A dealer at European bank in Tokyo said: "The dollar became well-offered against the yen after these comments knocked Japanese government bonds down."

The benchmark 182nd Japanese cash government was yielding 3.285 percent at 0705 GMT against its morning opening of 3.240 percent, while Tokyo stocks ended little changed after wiping out early hefty gains.

Fears of rises in Japanese interest rate have occasionally jolted the financial markets since early this year and dragged the dollar down against the yen on perceptions that narrowing interest rate gaps between Japan and the U.S. could make it less attractive for investors to buy dollar-denominated assets.

But dealers in Tokyo said the possibility that the BOJ will end its easy credit stance soon was still slim.

In morning trade, profit-taking by U.S. funds weighed down the dollar against the yen and the mark, but had been well-bid on talk of buying from Japanese importers and life insurers.

Stop-loss dollar sales were induced at 108.20 yen in reaction to the BOJ governor's remarks, with larger stop-loss orders in place at 108.00 yen, dealers said.

"The BOJ's remarks demonstrated again how the market is sensitive to rises in yen interest rates," said another dealer at a European bank. "It makes it hard for the dollar to re-test the topside, and the Bundesbank's council meeting (on Thursday) may accelerate dollar long liquidations," he added.

"The dollar does look heavy in the short term. There may be a few weak longs out there that we'll see cleared out," said a dealer with a British bank in Singapore. Dealers in Singapore said the dollar might have trouble breaking above 109 yen for the time being.

U.S. President Bill Clinton arrives in Tokyo later today for a state visit lasting until Thursday, but talks with Japanese officials are unlikely to have a major impact on the market. Specific economic agenda are unlikely to be discussed during Clinton's visit and focus will be on security issues. -euter