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Yen Rises to 14-Year High on View Authorities to Tolerate Gains


Nov. 26 (Bloomberg) — The yen rallied to a 14-year high against the dollar on speculation Japanese monetary authorities will tolerate further appreciation of the currency.

Finance MinisterHirohisa Fujii said today the government needs to take action on “abnormal” currency movements. Earlier, Vice Finance Minister Yoshihiko Noda said the government isn’t considering stepping into the currency market, Reuters reported.

“Fujii’s comments failed to dispel views that Japan won’t intervene immediately,” said Yuki Sakasai, a Tokyo-based foreign exchange strategist at Barclays Bank Plc. “Such a view makes it easier for traders to buy the yen.”

Japan’s currency rose to as high as 86.30 yen per dollar, the strongest since July 1995, before trading at 86.79 as of 6:38 a.m. in London from 87.35 yesterday in New York.

The dollar reached a post-World War II low of 79.75 yen on April 19, 1995. The dollar traded at $1.5113 per euro from $1.5134 yesterday, when it slid to $1.5144, the weakest since August 2008. The yen advanced to 131.16 per euro from 132.21.

The U.S. currency began a multiyear slide versus the yen in 1995 as a result of persistent U.S. trade deficits with Japan. The strength of the yen triggered joint purchases of greenbacks by the Bank of Japan and the Federal Reserve that year to weaken the Asian currency.

Possible Intervention

“I am watching these movements, right now it’s time to watch them closely,” Fujii told reporters in Tokyo today. “We need to take appropriate action against abnormal movements.”

Recent currency moves reflect weakness in the dollar, Reuters quoted Vice Finance Minister Noda as also saying today. Chief Cabinet Secretary Hirofumi Hirano later said the government is watching currency moves closely.

“Despite reported comments that ruled out intervention, we shouldn’t be careless about this possibility,” said Osamu Takashima, chief foreign-exchange analyst at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest bank. “The possibility of actual intervention may increase further if the yen approaches 80 and the euro rises to $1.60.”

Fed officials said in minutes of their Nov. 3-4 meeting released on Nov. 24 that the dollar’s decline has been “orderly” and that they would watch for any signs that the depreciation is pushing up people’s expectations for inflation.

Eisuke Sakakibara, formerly Japan’s head foreign-exchange official, said yesterday in a CNBC interview that the U.S. dollar may fall as low as 85 yen and the Japanese government might consider intervention at this amount.

Sakakibara told the financial-news channel he thought U.S. Treasury Secretary Timothy Geithner wants a “gradual decline” of the dollar to correct large trade imbalances, and wouldn’t be inclined to intervene now.

GDP

“The 10 yen rise in the assumed exchange rate can subtract some 0.2 percentage points off from Japan’s annual gross domestic product,” said Taro Saito, senior economist in Tokyo at NLI Research Institute Ltd. “But as long as export volumes are expanding, the most recent appreciation of the yen won’t send the Japanese economy back into a serious recession.”

Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

Honda Motor Co.’s operating profit fluctuates by about 12 billion yen ($138 million) per year when the Japanese currency moves 1 yen against the dollar, according to Hideto Maehara, a spokesman at the automaker.

‘Problem’ Yen

Japan’s government needed to take steps to prevent a strengthening yen from damaging the country’s economy, the head of a steel industry group said.

The current level of the yen was a “problem” for steel mills and their customers, Japan Iron & Steel Federation Chairman Shoji Muneoka said today at a press briefing. He is also the president of Tokyo-based Nippon Steel Corp., Japan’s largest mill.

Demand for the yen also increased as dollar loans remained cheaper than those in the Japanese currency.

Three-month yen London interbank offered rates, or Libor, stood at 0.301 percent yesterday, higher than the 0.256 percent rate for dollar loans, according to British Bankers’ Association data. Dollar loans became cheaper than those in yen for the first time in August.

“Recent declines in Treasury yields are also lending additional impetus for the weakness of the dollar against the yen,” said Toshiya Yamauchi, manager of the foreign-exchange margin-trading department at Ueda Harlow Ltd. in Tokyo.

Ten-year Treasury yields fell three basis points yesterday to 3.26 percent, the lowest since Oct. 9.

The euro retreated from near a 15-month high against the dollar as the European currency’s 14-day stochastic oscillator rose to 97 yesterday, above the 80 level some traders use to signal that an asset has risen too quickly and is poised to fall.

“The euro has definitely been overbought on the charts,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is a technical-related reason for the euro to be sold.”