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Yen Weakens After Tanigaki, Fukui Signal Comfort With Decline

Yen Weakens After Tanigaki, Fukui Signal Comfort With Decline

Dec. 5 (Bloomberg) -- The yen fell to a 32-month low against the dollar after Japanese Finance Minister Sadakazu Tanigaki and Bank of Japan Governor Toshihiko Fukui signaled they are comfortable with the currency's 15 percent drop this year.

Japan's currency also declined to a record versus the euro after Fukui told reporters in London on Dec. 3 a weaker yen is ``not a problem'' and Tanigaki said the slide reflects relative economic performance. The yen is set for the biggest annual drop against the dollar since 1979 as the BOJ keeps rates near zero and the Federal Reserve lifts rates at a ``measured'' pace.

``The Japanese are clearly pretty happy with the level of the yen,'' said Jeremy Stretch, a currency strategist at Rabobank Groep in London. ``There's quite a long way for the yen to go before officials will become concerned.''

Against the dollar, the yen fell to 121.27 at 8:42 a.m. in London from 120.60 in New York on Dec. 2, according to electronic currency trading system EBS. The yen weakened to 141.84 per euro from 141.30. The dollar traded at $1.17 versus the euro, from $1.1717.

Japanese officials may signal concern about the currency's decline should it reach 125 per dollar, a level unseen since December 2002, Stretch said.

``Generally speaking, foreign-exchange rates reflect fundamentals of economies,'' Tanigaki told reporters at a Group of Seven meeting in London at the weekend. Fukui, speaking at the same meeting, said the exchange rate ``depends upon market conditions.''

Interest-Rate Gap

The yen is weakening as central bank officials indicate borrowing costs will remain near zero into next year. The Fed has lifted its target rate 12 times since June last year to 4 percent and will raise it by another quarter point next week, according to economists surveyed by Bloomberg.

Fifty-eight percent of the 57 traders, strategists and investors polled by Bloomberg News on Dec. 2 from Sydney to New York recommended buying the dollar and selling the yen.

The weaker currency may boost the profit of exporters and has helped the Nikkei 225 Stock Average climb to a five-year high. The Nikkei rose 0.8 percent today to 15,551.31.

``If the yen level remains until March, there is a possibility for companies to revise earnings estimates,'' said Hiroshi Okuda, chairman of Toyota Motor Corp. and the Japan Business Federation. He spoke at a press conference in Tokyo.

Exporters Benefit

Toyota's annual operating profit increases by 20 billion yen for every one yen drop in the currency versus the dollar, said Koji Endo, an analyst at Credit Suisse First Boston in Tokyo.

Manufacturers predicted the yen would average 105.18 per dollar in the fiscal year to March 31, according to the BOJ's Tankan report on Oct. 3. The average so far is 111.35.

``Japanese financial authorities are not at all concerned about the yen's drop,'' said Etsuko Yamashita, chief economist in Tokyo at Sumitomo Mitsui Banking Corp. ``With the Nikkei jumping above 15,000, propelled by the weaker yen, they will not act in the currency market unless we see turbulent ups and downs.''

The yen may fall to 122.50 per dollar and 142.50 versus the euro this week, Yamashita said.

Tanigaki said he and U.S. Treasury Secretary John Snow didn't discuss the yen. Japan hasn't bought yen since 1998, when the world's second-largest economy was in the worst recession since World War II. The government hasn't directed the BOJ to sell the currency since March last year.

``It was surprising Snow did not say anything about the depreciation of the yen,'' said Michiyoshi Kato, vice president of foreign-exchange sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender by assets. ``Combined with Tanigaki's and Fukui's comments, this will further encourage yen-selling today.''

The yen may slide to 121.70 against the dollar, Kato said.

U.S. Economy

The dollar may further benefit from speculation a report today will show U.S. service industries expanded in November, reinforcing the view U.S. growth is strong enough for the central bank to raise rates further.

The Institute for Supply Management's measure of financial services, retailing, building and non-manufacturing businesses probably come in at 59, above the 50-point line that signifies expansion.

``U.S. service industries data will be yet another fresh incentive to push up the dollar, strengthening expectations of Fed's further rate hikes,'' said Kato at Mizuho Corporate Bank Ltd., who said the dollar may rise to $1.1660 per euro today.

`One Small Thing'

The yen's decline may be limited after a technical indicator some traders use to predict currency movements signaled that losses may stall.

The dollar's 14-day relative strength index against the yen was 74.8. The euro had a reading of 69.4 against the yen. A level above 70 or below 30 signals a reversal may occur.

``I won't be surprised to see the dollar face a short-term downward correction,'' said Akihiro Tanaka, a senior currency dealer in Tokyo at Resona Bank Ltd. ``One small thing could lead to a correction of the dollar-yen.''

Japan's currency may rise to 120.80 against the dollar and 141.50 per euro today, Tanaka said.

To contact the reporter on this story:
Kosuke Goto in Tokyo at at [e-mail];
Rodrigo Davies in London at [e-mail].


LINK: http://www.bloomberg.com/apps/news?pid=10000101&sid=aEM_bmeVsWYI&refer=japan