Sakakibara Sees Yen at 100, `No Quick Fix' for U.S.

By Stanley White and Catherine Yang

Sept. 19 (Bloomberg) -- Japan's yen may strengthen past 100 to the dollar this year because there is ``no quick fix'' for U.S. credit-market turmoil, said Eisuke Sakakibara, formerly Japan's top currency official.

The yen may also rise to 130 per euro, Sakaibara forecast, as traders pare carry trades, in which higher-yielding assets overseas are funded with Japan's currency. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke's plans for an agency to buy bad debt from U.S. banks won't calm financial markets for another two years, he said.

``We could see more unwinding of yen carry trades because there is no quick fix,'' Sakakibara said in an interview with Bloomberg Television in Tokyo. ``There could be appreciation of the yen, particularly against currencies like the Australian dollar and the euro. A stronger yen could be beneficial for Japan.''

The yen fell to 106.72 per dollar at 11:16 a.m. in Tokyo from 105.44 late yesterday in New York. It was quoted at 151.86 per euro from 151.28.

Against the Australian dollar, the yen declined to 86.31 from 84.59 late yesterday in Asia. It also fell to 71.79 versus the New Zealand dollar from 70.95.

Carry Trades

In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits. The Bank of Japan's benchmark rate of 0.5 percent compares with 2 percent in the U.S., 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand.

Banks and insurers worldwide have booked more than $510 billion in losses and writedowns since the global credit crisis began about 13 months ago. Lehman Brothers Holdings Inc. filed for bankruptcy this week and the Federal Reserve stepped in with emergency funding for American International Group Inc., the biggest U.S. insurer by assets.

Sakakibara, 67, currently a professor at Tokyo's Waseda University, was dubbed ``Mr. Yen'' because of his ability to influence the foreign-exchange market during his 1997-1999 tenure at the Finance Ministry. He is a member of the Asia- Pacific advisory board of Bloomberg LP, the parent of Bloomberg News.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net