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Money joins tourists homeward bound

As US warplanes converged on the Middle East on Thursday following last week's nightmarish attacks on New York and Washington, money was flying to safer havens, joining tourists in sticking closer to home.

Figures on fund flows in and out of Japan gave a first glimpse of a rush to repatriate cash after the traumatic events, as investors on both sides of the Pacific dumped foreign assets as fast as creaky settlement systems allowed.

Japan's ministry of finance said US investors repatriated a large amount of funds last week by selling Japanese bonds and shares, both to ensure liquidity at hand and as a means of lessening portfolio risk.

Foreign investors unloaded a net yen 311.4 billion ($2.65 billion) of Japanese bonds in the week, on top of yen 269 billion worth of Japanese equities.

Americans were not the only ones heading home, since Japanese investors themselves dumped a net yen 284 billion worth of foreign stocks and bonds in the same week.

The sums would likely have been much larger but trading was severely restricted until September 14 due to concerns about possible settlement problems.

With Wall Street sliding to three-year lows on record trading volumes this week, analysts suspected repatriation had ballooned.

"Large selling in Japanese stocks and bonds reflected foreign investors' attempts to reduce risk positions," said Masayuki Kichikawa, senior economist, Asahi Life Asset Management Co Ltd.

Repatriation by institutional investors is taking place on a global scale and was likely to continue until world financial markets found some stability, he added.

South Korea was all too aware of the trend, with foreigners selling some won 230 billion of local stocks so far this week, an outflow which was also putting pressure on the won.

Neither was it doing Tokyo shares any favours, at a time when investors were already suffering nightmares about the damage last week's attacks could inflict on Japanese exports.

JAPAN'S TRADE SURPLUS

Data on Thursday showed Japan's customs-cleared trade surplus dived 47 per cent in August from a year earlier -- and that was before the September 11 assaults on New York and Washington.

Stripping out price and currency changes, exports fell a hefty 13 per cent, the second steepest drop ever under the current calculation method.

"Given the developments in the US over the past couple of weeks, and given that we are likely to see more fallout from it on Asian economies, exports will probably continue to drop in the coming months," said Yasuaki Kudamatsu, senior economist at Tsubasa Research Institute.

That translated into steep falls in the value of Japan's world-leading exporting companies.

Toyota, the country's top automaker, has shed 19 per cent since the assault on the World Trade Center towers and the Pentagon. Honda has lost a quarter of its value.

High-tech exporters have followed suit, with top chipmaker Toshiba down 12 per cent and electronics giant Sony off 10 percent.

The Bank of Japan, accentuating the gloom, downgraded its view of the economy for the fourth straight month on Thursday, citing substantial declines in exports and production.

The grim outlook for exports is one reason Japan is desperately trying to prevent any further rise in the yen.

Top financial diplomat Haruhiko Kuroda on Thursday repeated his usual warning about the MOF closely watching the market.

Dealers were inclined to take him at his word given the BOJ has already intervened several times this week, buying perhaps $8.0-$10 billion for yen. The threat was enough to keep the dollar steady atop yen 117.00 Thursday, though regional currencies came under various amounts of pressure.

Kuroda has been despatched by his boss, Finance Minister Masajuro Shiokawa, on a mission to Europe and America to drum up support for Japan's stance and dealers are waiting with some anticipation to see how he fares.

China was also feeling the chill, with Vice Minister of Foreign Trade Sun Zhenyu warning that export growth could deteriorate further, having already slowed sharply this year.

China exported goods worth $100 billion to the United States last year, second only to Japan in value.

In bustling Hong Kong, it was not so much the loss of goods that was worrisome, but the absence of travellers.

Hong Kong's tourism industry is taking a battering as travellers cancel bookings and choose to stay home after last week attacks in the United States that killed nearly 6,000 and spawned new security measures for air travel.

Tourism is a major source of income for the territory, earning HK$61 billion (US$7.8 billion) in 2000.

"Business is very, very bad, whether for incoming or outgoing travel," said the chairman of the Hong Kong Inbound Travel Association, Paul Leung, who also runs a major travel agency.

"There are no longer any bookings, just cancellations."

"People are just afraid of flying, whether it's long-haul or short-haul, American or non-American carriers," he added.

That had obvious and damaging implications for airlines.

Japan Airlines on Thursday became the latest carrier to be downgraded by a ratings agency, with Moody's cutting its outlook to negative from stable.

Such was the mischief wrought on the US industry that it went on bended knee to request $17.5 billion of aid from the government.

Late on Wednesday, the White House replied with a bail-out plan that included only $5 billion in direct cash assistance, but not $12.5 billion in loan guarantees.

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