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. Last Updated: 07/27/2016

Rising Yen Gives Japan Another Fiscal Headache

TOKYO -- Compounding the woes of the slumping U.S. dollar, the Japanese yen has skyrocketed to eight-month highs against the greenback as investors flinch at terrorism threats, crooked accounting and a dimmed outlook for a quick U.S. recovery.

But unlike in Europe, where people see the euro's recent rally against the dollar as a triumph for their fledgling currency, Japanese politicians and business leaders are increasingly worried by the yen's steady rise.

Underlining the concern, the Bank of Japan orchestrated a global dollar-buying spree in New York and London markets on Friday after the dollar dropped to 118.36 yen -- its lowest point this year. The move followed a smaller intervention earlier in the week.

Despite the two interventions -- including Friday's high-profile help from the U.S. Federal Reserve and European Central Bank, which sold yen and bought dollars on the BOJ's behalf -- the dollar got little relief.

On Monday, it was bumping along in the 119 yen range and most economists expected it to sink further soon.

"The prospects are not good," said Richard Koo, a currency analyst at Nomura Research Institute in Tokyo. "Foreign investor confidence in the United States is disappearing. The returns just aren't there."

Foreign investors once played a key role in keeping the dollar strong against the yen. They needed the currency to buy U.S. stocks and other investments during the boom of the late 1990s. The dollar also got a boost this winter on fears that the Japanese economy was in a free fall of recession, unemployment and bad debt.

Now, worries about the Japanese economy are increasingly outweighed by worries about U.S. stock prices -- stoked by reports like WorldCom's revelation that it disguised $3.8 billion in expenses.

The WorldCom case is one of a series of corporate U.S. scandals that have sapped investor confidence and helped pushed the dollar down 11 percent against the yen since February. The dollar, which tumbled 4 percent last month alone, is now hovering just above the lows it hit after the Sept. 11 terrorist attacks.

It's not just the yen that's climbing against the dollar. The euro has been driven by the same factors, and has risen about 11 percent against the dollar since April. It is flirting with parity to the dollar at 99 cents.

The dollar is also getting undermined by renewed concern about another terrorist strike and continuing violence in the Middle East, some economists say.

"There is the perception that if there is another terrorist event, the United States will be the target and you don't want too much exposure to the U.S. market," said Ron Levin, head of currency analysis for Lehman Brothers in Tokyo. He expects the dollar to continue its decline for another 12 months and bottom out around 110 yen.

Still, most economists say the dollar's decline is more a case of weak fundamentals on the U.S. side, rather than strong ones in Japan or Europe.

Japanese business sentiment improved in June for the first time in more than a year, according to a BOJ survey release Monday. And Japan's economy grew 1.4 percent in the first three months of this year after a nine-month contraction.