Yen Weakens on Speculation Kan to Succeed Hatoyama; Pound Gains

By Paul Dobson and Yasuhiko Seki
June 2 (Bloomberg) -- The yen fell against its major counterparts amid speculation Finance Minister Naoto Kan will succeed Prime Minister Yukio Hatoyama and pursue measures to make the currency weaker.
The yen declined to the lowest level in almost two weeks against the dollar after Hatoyama tendered his resignation today as public criticism mounted over his handling of U.S. troop deployments in Okinawa. The pound strengthened on speculation Prudential Plc will reverse contracts to sell sterling it acquired to fund the aborted $35.5 billion takeover of American International Group Inc.’s main Asian unit. The euro stayed near its weakest level in four years versus the dollar.
"Markets have been slightly suspicious of Kan’s attitude to the currency," said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. "He has said that most businesses would prefer a weaker yen and hence the fall."
The yen slid to 91.59 per dollar at 8:35 a.m. in London from 90.94 yesterday in New York, after reaching 91.79, the weakest since May 20. It fell to 112.10 per euro from 111.22 yesterday. The euro was at $1.2238 from $1.2229 yesterday when it touched $1.2111, the lowest since April 2006.
Kan said on his first day as finance chief on Jan. 7 that he wants the currency to weaken "a bit more" after it declined from a 14-year high of 84.83 per dollar in November. He said manufacturers think a range of 90 to the mid-90s is desirable.

Weak-Yen Advocate

Kan, together with National Strategy Minister Yoshito Sengoku and Foreign Minister Katsuya Okada, are likely candidates to replace Hatoyama, said Gerald Curtis, a professor of Japanese politics at Columbia University in New York.
"If Kan, who is an advocate for a weak yen, replaces Hatoyama, investors’ expectations will strengthen for the yen to decline," said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest banking group.
Ichiro Ozawa, the ruling Democratic Party of Japan’s top campaign strategist, will also step down as secretary-general, Hatoyama said. The resignations come less than two months before mid-term elections, endangering the DPJ’s prospects and hindering its efforts to reduce the public debt and push through legislation to expand the country’s postal system.
Hatoyama stepped down less than a week after the Social Democratic Party left the ruling coalition after the prime minister fired its leader from the Cabinet for refusing to endorse an accord on the relocation of the Futenma Marine Air Base in Okinawa. The government will retain power regardless of the result of upper-house elections this summer because of its majority in the lower chamber.

‘You sell’

"As a broad rule, when the head of a country passes away or resigns, you sell the currency of that nation," said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc., which manages the equivalent of $17 billion. "Investors had better steer clear of Japan for the time being."
The pound rose 0.5 percent to $1.4730, the biggest gain among the most-active currencies, as Prudential said it’s negotiating to cancel the acquisition of AIG’s main Asian unit after failing to win a price cut. Investors are speculating that Prudential had already hedged its dollar requirements, according to Steve Barrow, head of G-10 research at Standard Bank Plc.

‘Expected Unwinding’

"The expected unwinding of these hedges has lifted sterling against the dollar and on a cross basis," Barrow said today in an e-mailed note.
The euro stayed near its four-year low against the dollar on concern that Europe’s efforts to rein in budget deficits will hamper the region’s economic revival and the European Central Bank will tolerate a weaker single currency.
It reversed an earlier decline after European Commission President Jose Manuel Barroso called for a "commitment to keep the euro a strong and credible currency" during a news conference today in Vilnius, Lithuania.
The jobless rate in France increased to 10.1 percent in the first quarter from 10.0 percent in the last three months of 2009, according to a Bloomberg survey before Paris-based statistics office Insee releases the data tomorrow.
Unemployment in the 16-nation euro area increased to 10.1 percent in April, the highest rate since June 1998, the European Union’s statistics office said yesterday in Luxembourg.
"The euro-zone economy will lag behind the U.S. and other counterparts as spending cuts will yield downside pressure,"
said Akira Maekawa, a senior economist at the online currency trader Global Futures & Forex Ltd. in Tokyo.
ECB Governing Council member Christian Noyer said the euro’s current rate is "by no means an extraordinary level,"
Germany’s Handelsblatt reported, citing an interview.
"The present exchange rate of the euro vis-a-vis the dollar is close to the average of the last 10 years," Noyer told the newspaper.