Yen Declines


The yen fell from near a 13-year high against the dollar and tumbled versus the euro after Japan’s government signaled it may intervene in the foreign- exchange market for the first time in four years.

Finance Minister Shoichi Nakagawa said he has the means” to limit the yen’s advance, which undermines Japanese exporters by raising prices for overseas customers. The dollar erased its annual gain against the euro on bets the Federal Reserve’s near- zero interest-rate policy will reduce the appeal of U.S. assets. The pound tumbled to a record against the euro for a ninth day.

The yen fell 1.3 percent to 88.38 per dollar at 8:15 a.m. in New York, from 87.24 yen yesterday, when it reached 87.14, the highest level since July 1995. The euro increased 2.7 percent to 129.21 yen from 125.80 yesterday. The dollar dropped 1.4 percent to $1.4626 per euro from $1.4419, weakening beyond $1.47 for the first time since Sept. 25.

The dollar depreciated 26 percent against the yen this year, the most since 1987, as more than $1 trillion of credit- market losses sparked a seizure in money markets and threw the world’s largest economy into a recession.

Japan may step into foreign-exchange markets following the yen’s recent gains, Chief Cabinet Secretary Takeo Kawamura said today in Tokyo. The government expects the Bank of Japan to respond appropriately to the yen, he said. Central banks buy or sell currencies when they seek to influence exchange rates. The yen gained 26 percent versus the dollar this year.

Honda Motor Co., Japan’s second-largest automaker, cut the company’s full-year profit forecast this week by 62 percent, citing a surging yen and falling sales in North America and Europe.

The last time Japan intervened on its own, it sold a record 20.4 trillion yen in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar. Japan hasn’t bought yen since 1998, when it spent 3.05 trillion yen as the currency reached as low as 147.66. The Group of Seven, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, propped up the dollar in 1995, when it declined to a post-World War II low of 79.75 yen.

The dollar declined against the euro on speculation the Fed has fewer tools left to combat a recession. The Fed lowered its target rate on Dec. 16 to a range of zero to 0.25 percent, the lowest among major economies, from 1 percent. The central bank reiterated plans to purchase agency debt and mortgage-backed securities and said it will study buying Treasuries.

The pound weakened beyond 95 pence per euro for the first time on speculation the Bank of England may follow the Fed in cutting the target lending rate to near zero.

The euro also rose after European Central Bank Executive Board member Juergen Stark, speaking in a Manager magazine interview, underscored the threat of inflation from expansive monetary policies.


TradingEconomics.com, Bloomberg.com
12/18/2008 5:44:53 AM