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Stocks, Bonds Fall as Investors Pull Out of Weak Japanese Yen

By Paul Blustein
and Steven Mufson
The Washington Post

The Japanese yen fell to an eight-year low against the U.S. dollar Thursday, driving down the prices of stocks and currencies around the world and prompting international financial officials to warn that Japan's economic troubles now threaten to tip Asia into a new round of crises.

Many investors dumped Asian stocks and currencies and poured the cash into U.S. Treasury bonds, which are considered a safe haven in times of turmoil. That helped drive U.S. interest rates lower as the yield on the benchmark 30-year Treasury fell to a record 5.65 percent. U.S. stock prices plummeted on fears that Asia's woes will hurt corporate earnings. The Dow Jones industrial average lost nearly 160 points, or 1.8 percent, to close at 8,811.77.

Top U.S. officials spent the day warning that the United States has few if any options for dealing with this latest jolt to Asia's economies, which they fear could deepen and prolong the region's crisis and spread to other countries, including China and Russia. U.S. Treasury Secretary Robert E. Rubin told a Senate hearing that the responsibility for stemming the slide in the yen and quelling the crisis rests squarely with Japan.

"I think the question is, what can we do?" Rubin said, rejecting suggestions that the United States might take action to halt the dollar's rise on currency markets. "The weakness of the yen reflects the economic conditions in Japan, and can only be remedied by restoring economic strength in Japan." He said it was more urgent than ever for Tokyo to revamp its ailing banking system and boost its flagging economic growth.

Japan's anemic economy and sagging currency hurt its neighbors in two main ways:

Because Japan's high-tech economy is a major market for East Asian products, the fall in spending there dampens demand for Asian exports and diminishes recovery prospects in crisis-stricken countries such as South Korea and Thailand.

The lower the yen falls, the cheaper Japanese products become on world markets, which undermines the competitiveness of rival Asian goods. The yen fell Thursday to more than 144 in relation to the dollar.