Yen Falls on Speculation Japan Will Act to Curb Currency Gains

By Bo Nielsen and Yoshiaki Nohara
Aug. 27 (Bloomberg) -- The yen fell as Prime Minister Naoto Kan said Japan is willing to take “bold” action on currencies, fanning speculation policy makers will move to halt the yen’s advance.
Japan’s currency weakened versus 15 of its 16 major counterparts as Kan said the government will compile an outline of its stimulus plan on Aug. 31. The dollar headed for a second weekly loss against the Swiss franc on speculation Federal Reserve Chairman Ben S. Bernanke will signal the central bank will keep interest rates near zero to spur growth.
“In the short term the market doesn’t want to bet openly against the Bank of Japan because it has proved that it’s willing to intervene by its own,” said Stephan Maier, a foreign-exchange strategist at UniCredit SpA in Milan.
The yen depreciated to 107.79 per euro as of 9:33 a.m. in London from 107.39 in New York yesterday, after strengthening as high as 106.99. Japan’s currency weakened to 84.75 per dollar from 84.45, reducing its gain for the week to 1 percent. The dollar was at 1.0250 francs from 1.0240, set for a 0.9 percent loss this week. The greenback was little changed against the euro for the day and week at $1.2708 per euro.
Japan’s currency pared declines versus the euro after the Stoxx Europe 600 Stock Index fell 0.1 percent. Futures on the Standard & Poor’s 500 Stock Index rose 0.3 percent.

Ministers Meet

Kan, speaking today in Tokyo, said volatile foreign exchange movements are harmful to economic and financial stability. Kan’s economic ministers will meet today to discuss the policies, including strengthening ties with the Bank of Japan, Chief Cabinet Secretary Yoshito Sengoku told reporters in Tokyo. The ministers agree on the need to curb the currency’s advance as soon as possible, he said.
Finance Minister Yoshihiko Noda also said today the nation’s currency situation is “severe” and reiterated the government is prepared to take appropriate action when necessary.
“So far nothing really new or relevant” from Kan’s comments, said David Deddouche, a foreign-exchange strategist at Societe Generale SA in Paris. “What is clear is that the government has increased the pressure on the BoJ.”
Japan’s currency has advanced 15 percent this year in the biggest gain among developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 9 percent, and the dollar is up 3.8 percent.
Every one-yen advance against the dollar reduces Toyota Motor Corp.’s annual operating profit by 30 billion yen ($354 million), according to the company.

U.S. Economy

“In the next three to six months, Japan’s yen will likely remain much stronger to the U.S. dollar,” said Yasuhiro Matsumoto, a senior analyst in Tokyo at Shinsei Securities Co., in a Bloomberg Television interview. “That will put some downward pressure on Toyota’s earnings.”
The dollar headed for a second weekly loss versus the yen before a U.S. report today that may show the recovery of the world’s largest economy is faltering.
The U.S. economy grew at a 1.4 percent annual pace last quarter, the weakest in the recovery that began last year, according to a Bloomberg survey before today’s Commerce Department report. Sales of new homes unexpectedly dropped in July to the lowest level on record, a separate Commerce Department report showed on Aug. 25.

Wyoming Meeting

Bernanke, who speaks today at an annual Fed symposium in Jackson Hole, Wyoming, is likely to elaborate on how much Fed officials or staff economists have cut their forecast for 2011 growth, Paul McCulley, managing director at Pacific Investment Management Co., said yesterday in a Bloomberg Radio interview.
“Recently extreme weak economic data have increased the odds of a second round of quantitative easing,” said Steven Englander, head of Group-of-10 currency strategy at Citigroup Inc. in New York, in an investor note. “Further expansion of the Fed’s balance sheet and more direct efforts at reflating the U.S. economy will likely put downward pressure on the dollar.”
Futures on the CME Group exchange show a 31 percent chance the Fed will cut the target rate for overnight bank lending to zero by its November meeting, up from a 25 probability a month ago. The central bank’s benchmark interest rate is in a range from zero to 0.25 percent.