In early afternoon trading, the dollar was down to 98.80 Japanese yen, penetrating the previous low of 99.60 yen set Monday. In late trading Tuesday, the dollar was at 99.95 yen.
The dollar, however, was up against the German mark at 1.5859 from 1.5795 marks Tuesday.
The dollar's latest rout, after a brief respite Tuesday, stemmed from concern over the continued lack of progress in the crucial U.S.-Japan negotiations to cut Japan's trade surplus.
Treasury Secretary Lloyd Bentsen's comment Tuesday night that Japan's political turmoil was slowing progress in trade talks rattled the currency market and ignited the dollar's fall, analysts said.
Asked what impact political instability in Japan was likely to have on the trade talks, Bentsen told the annual dinner of the Foreign Policy Association in New York: "It obviously slows the process down until they get their people in place to negotiate. We do not see the progress at this point that we were hoping for."
Adding to the uncertainty was the Japanese government election of Tomiichi Murayama, a Socialist, to be the next prime minister.
"The election of Murayama has caused a big rise in the yen," said Neal Soss, the chief economist at CS First Boston. "It's strength is a political judgment on Japan" and the outlook for U.S.-Japan trade negotiations, he added.
Many analysts doubted whether Murayama's appointment could turn the dollar's fortunes around by reducing Japan's trade deficit.
"This new administration is not going to be any speedier than the previous one at producing measures to pry open Japanese markets and is going to encourage yen strength," said Avinash Persaud, the head of currency research at J.P. Morgan.
Murayama replaced Japanese Prime Minister Tsutomo Hata who resigned last weekend to avoid losing a no-confidence vote in parliament.
Currency speculators also turned against the dollar after U.S. Trade Representative Mickey Kantor said the United States must be realistic about the chances for any trade breakthroughs with Japan.
"I think you have to be somewhat realistic, given what's going on in Japan politics, whether we're going to have any particular breakthroughs," Kantor said in a radio interview.
The dollar's fall to a new low Wednesday came despite intervention by the Bank of Japan, which bought dollars several times.
Many had expected the Federal Reserve and other central banks to intervene in support of the ailing currency, but as the morning wore on it became increasingly apparent that the monetary authorities would stay out of the market.
Analysts said the dollar's value cannot be maintained without credit-tightening by the Federal Reserve and easing by the German Bundesbank and possibly the Bank of Japan.
A score of central banks intervened Friday to back the dollar, but the huge intervention, costing at least $3 billion, failed to halt the currency's slide.
He said he was "cautious, realistic and pragmatic" as the Clinton administration must now deal with its fourth Japanese prime minister, Murayama.
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