By Sandra Sugawara
Washington Post Foreign Service
Tuesday, June 9, 1998; Page F01

TOKYO, June 8—Japan's yen tumbled to a seven-year low today, bringing other Asian currencies down with it, amid worsening gloom about Japan's financial system and the regional economy as a whole.

Japan's central bank failed to intervene to stop the dollar from crashing through the psychologically significant level of 140 yen. [In late New York trading, the dollar was trading at 140.71 yen, up from 139.75 late Friday. Early Tuesday in Tokyo, the yen fell to 141.17 to the dollar, a new seven-year low, before recovering to 140.83, Bloomberg News reported.]

Japanese officials warned today that Japan was prepared to take "decisive measures," but traders questioned how much impact such measures could have without support from U.S authorities, which so far are treating it as Japan's problem.

The yen's fall dragged the New Taiwan dollar to an 11-year low and the Australian dollar to a 12-year low, while the currencies of Singapore, Indonesia, South Korea and Thailand were also hit, at a time when stabilizing currencies is a key goal toward pulling the region out of a financial crisis that struck last year.

Analysts said a rapidly falling yen can cause some foreign investors to lose confidence in the entire region, because Japan is Asia's largest economy. And countries such as South Korea and Taiwan compete directly with Japan in exports such as consumer electronics and steel. So when the yen falls, it puts competitive pressure on those currencies as well.

In Japan, the yen's slide is producing pain for Japanese consumers who have grown accustomed to commanding strong buying power for foreign goods. "You could buy anything with yen before," said Eri Suzuki, 21, a college student. "Everything seemed cheaper when you had yen. But look at it now -- it's wobbly and it just doesn't seem to have the power anymore."

Currency traders said pessimism on the yen's value reigned today in part because rosy employment data released in the United States on Friday highlighted the sharp difference between the robust U.S. economy and that of Japan, where unemployment is rising.

Rumors that the deputy finance ministers of the Group of Seven industrial nations might take concerted action to support the yen when they meet in Paris on Tuesday subsided today, because of indications the meeting will focus on Russia.

The yen has depreciated nearly 45 percent against the dollar since the spring of 1995, when the Japanese currency was so strong that it took just 79 yen to buy a dollar.

Ravi Bulchandani, a London-based currency expert with Morgan Stanley, wrote recently that he believes the yen will bottom out in the range of 150 to 160 to the dollar. He said one of the things that might indicate to him that the yen had bottomed out would be "a strong revival in foreign investment in Japan by foreigners."

Others say the yen might reach bottom if Japanese authorities were to show resolve in fixing the banking system. Japanese officials are creating a mechanism for cleaning up bad loans left from the speculative "bubble economy" of the late 1980s, but it is unclear how much teeth the process will have.

In the meantime, news reports over the weekend that Nippon Life Insurance will no longer extend certain types of loans to troubled banks and other financial institutions raised concerns about the stability of the financial system. "Generally we plan to decline requests to extend new subordinated loans, although we will look at individual cases," a Nippon Life spokesman said tonight. Subordinated loans rank behind other loans in repayment priority, so they carry higher interest rates and risk.

When the Finance Ministry had a "too big to fail" policy that certain institutions would remain open at all costs, life-insurance companies were eager to provide such loans to banks and securities companies. But the failure of Sanyo Securities and Yamaichi Securities last November changed that, especially since the recent discovery of hidden debts at Yamaichi.

Because Nippon Life is the largest Japanese life insurance company, analysts expect other Japanese companies to follow its course.

"This is quite disastrous news for weaker banks, if Nippon Life is serious and if other life insurers follow suit, and I think they will," said James Fiorillo, a banking analyst with ING Barings Securities Ltd. He said banks, especially lower-rated ones such as Nippon Credit Bank Ltd. and Yasuda Trust & Banking Co., depend on life insurance companies to be a source of capital in times of need "such as right now."

Weak banks are under pressure from key shareholders as well as creditors. Dai-Ichi Kangyo Bank Ltd., one of the biggest shareholders in the ailing Nippon Credit Bank, plans to sell its shares in the bank, according to Kyodo News Service. A Dai-Ichi Kangyo spokesman said tonight that no such decision had yet been made.

Meanwhile, both Nippon Life Insurance and Bank of Tokyo-Mitsubishi have sold more than 30 million shares of Nippon Credit Bank, according to the Nihon Keizai Shimbun, a national financial newspaper. A Bank of Tokyo-Mitsubishi spokesman said the bank had sold shares but declined to say how many.

All this has raised anxieties in the financial sector only a few months after legislation appropriating more than $200 billion to recapitalize banks and strengthen the deposit insurance fund had calmed markets.

Correspondent Mary Jordan and special correspondent Akiko Kashiwagi contributed to this report.