The Japanese yen took another nosedive today, dropping to a two-year low point in the wake of reports that troubles in Iran would interfere further with Japan's oil supplies.
The exchange rate dropped to 247.20 yen per dollar, the lowest level since November 1977. It was 5.20 yen lower than the Friday close, marking one of the biggest declines in a year during which the currency has dropped continually.
Once again, the Bank of Japan tried to cushion the decline by selling dollars sporadically, but the intervention had little effect. It is estimated that so far this year the bank has sold more than $12 billion in an effort to prevent the yen from dropping even further.
Dealers in Tokyo said the continuing instability in Iran, including the seizure of the American Embassy there, was a major factor in the latest decline, which followed a weekend holiday.
A reduction in oil from Iran forces Japan to pay more for oil from other sources, increasing the likelihood of an international trade deficit, which in turn lowers the value of the yen.
Currency traders assume that Japan would suffer more than other countries if oil supplies from Iran were reduced or it that country's national oil company demanded higher prices.
The immediate effect has been to force Japan to turn more and more to the spot oil market, where prices are nearly double those paid in long-term contracts.
The Ministry of International Trade and Industry recently estimated that about 11 percent of Japan's total oil imports will come from purchases on the spot market in the last quarter of this year. Normally it is only about 5 percent or 6 percent.
The most recent concern was prompted by reports from several large Japanese trading companies over the weekend that their supplies from Iran would be cut by 5 percent in the October-December period.
The companies also said that their negotiations with the National Iranian Oil Co. for next year's supplies had been "suspended."
Thirteen large trading companies have contracts with Iran to supply about 460,000 barrels a day.
The Japanese government and the Bank of Japan insist almost daily that the yen is undervalued seriously but their remarks have had little effect on the market. At the same time, they concede that further oil price increases are likely to depress its value even further.
Just a year ago, the yen was at a high point, with the exchange rate averaging 184 to the dollar throughout November. It hit 230 in the middle of last month, remained stable for a time and then dropped sharply again to the new low of 247.20.
The U.S. government has sympathized with Japan on the long decline and has picked up the theme that the yen is undervalued.
"There seems little doubt . . . that the foreign exchange market movement is an overreaction not fully justified by fundamental factors," Treasury Undersecretary Anthony M. sOlomon said in a recent speech in Washington.
Americans feel that the low yen will revive the Japanese export drive and rekindle the now-dormant argument that Japan sells too much to the United States and buys too little from it. The low yen serves to make Japanese production in the United States strongly competitive with American made products.
Japanese investors already are betting that the low yen will increase profits for those companies that are major exporters of goods to the United States. On the Tokyo stock market this morning, the prices of shares of export-oriented firms rose sharply, especially those of companies making electrical products, automobiles and precision instruments.