20070817 yenclimbs 76139641 18
A foreign currency graph illustrates the yen's climb against the U.S. dollar. The dollar slipped to 113.71 yen in Tokyo morning trade after players scrambled to exit risky bets. - 


Doug Krizner: Interest rates in Japan have been low for years. It was easy to borrow money cheaply in Japan and invest in other countries offering higher rates, like the U.S. — a no-brainer.

It produced a virtual money machine, an ATM on steroids, spitting out Japanese currency. Those cheap yen created temptation to make risky investments and helped to create a huge credit bubble in the U.S.

Inside the bubble, among other things: lots of subprime mortgages. We know all too well that bubble has burst.

Cleaning the mess means paying back that borrowed Japanese money. As that happens, the yen gains strength. It did so overnight. Japan's currency reached 14-month high against the dollar, but that's not good for Japanese exporters. Economist Andrew Hilton.

Andrew Hilton: The Japanese economy is driven by the global demand for Japanese exports. That means Toyotas, it means Hondas, it means Nissans, and it means the thousands and thousands of very high quality goods that we've all learned to live on and Americans are going to buy fewer of them and since exports are what is driving the Japanese economy, the Japanese economy itself may turn down.

So Japan's stock market fell overnight and fell hard. The Nikkei recorded its biggest one-day drop since the Sept. 11 terrorist attacks, a loss of more than 5 percent. And in Hong Kong, the market posted its biggest points decline in six years.

For Wall Street though, a mesmerizing recovery yesterday. The Dow battled back from being down 340 points to finish with just a 15 points loss. The average ended at 12,845. The S&P rose 4 to 1,411, but the NASDAQ gave back 7 points to 2,451.