(AFP) The government could be forced to devalue the ringgit if the yen falls further as a result of Japan undertaking widespread economic reforms, an analyst said today.

Credit Lyonnais Securities Asia (CLSA) regional senior economist Anthony Nafte said reforms in Japan would lead to a fall in the yen, forcing Malaysia to repeg its currency to the US dollar.

The government controversally fixed the ringgit at 3.80 to the dollar in September 1998 to protect the currency against volatility in the wake of the 1997 Asian economic crisis.

Prime Minister Dr Mahathir Mohamad in mid-April said the government might fix a new exchange rate if the ringgit experienced a sustained 20 percent fall or rise against regional currencies.

More closures

Nafte told a media conference at the CLSA investors' forum in Hong Kong that Japan's currency was the most important factor determining the fate of the ringgit.

"If there was a 10 per cent depreciation of the yen, then I think you would reach the threshhold in Malaysia and they would be forced to move to a repegging," Nafte said.

He predicted the yen would depreciate if the Japanese government, under the leadership of new Prime Minister Junichiro Koizumi, undertakes its promised economic reforms.

The reforms would be expected to cause further economic slowing in Japan in the short term, with the writing off of banks' bad debts resulting in more business closures.