Yen Rises to 14-Year High on View Authorities to Tolerate Gains

By Bo Nielsen and Yasuhiko Seki

Nov. 26 (Bloomberg) -- The yen rallied to a 14-year high against the dollar on speculation Japanese monetary authorities will tolerate further appreciation of the currency.

Finance Minister Hirohisa Fujii said today the government needs to take action on “abnormal” currency movements. Vice Finance Minister Yoshihiko Noda said the government isn’t considering stepping into the currency market, Reuters reported. The Swiss franc fell against the dollar on speculation the nation’s central bank sold the currency after it climbed to parity with the greenback for a second day.

“The Japanese authorities probably won’t step in unless we see an acceleration of the move below 85” yen per dollar, said David Deddouche, a foreign-exchange strategist in Paris at Societe Generale SA. “But traders will try to test that level in the coming days.”

Japan’s currency rose to 86.30 yen per dollar, the strongest since July 1995, before trading at 86.68 as of 10:40 a.m. in London from 87.35 yesterday in New York.

The dollar traded at $1.5085 per euro from $1.5134 yesterday, when it slid to $1.5144, the weakest since August 2008. The yen advanced to 130.76 per euro from 132.21. The franc fell 0.3 percent to 99.97 centimes per dollar.

The dollar’s decline below 87.1 yen leaves “very few supports” until the post-World War II low of 79.75 from April, 19, 1995, according to Tomoko Fujii, a foreign-exchange strategist at BofA Merrill Lynch in Tokyo.

Dollar Safety

While it slid against the yen, the dollar climbed against 14 of the 16 most-traded currencies tracked by Bloomberg after Dubai’s attempt to reschedule its debt spurred investors to seek the safety of assets perceived to be lower risk. The U.S. currency jumped 1.8 percent to 71.96 cents per New Zealand dollar.

The U.S. currency began a multiyear slide versus the yen in 1995 as a result of persistent U.S. trade deficits with Japan. The strength of the yen triggered joint purchases of greenbacks by the Bank of Japan and the Federal Reserve that year to weaken the Asian currency.

The last intervention took place on March 16, 2004 when the Bank of Japan sold 67.8 billion yen ($782 million) for dollars, according Derek Halpenny, European head of currency strategy at Bank of Tokyo-Mitsubishi UFJ Ltd.

“I am watching these movements, right now it’s time to watch them closely,” Hirohisa Fujii told reporters in Tokyo today. “We need to take appropriate action against abnormal movements.”

Recent currency moves reflect weakness in the dollar, Reuters quoted Vice Finance Minister Noda as also saying today. Chief Cabinet Secretary Hirofumi Hirano later said the government is watching currency moves closely.

‘Door Ajar’

“It is clear that the government is leaving the door ajar on the option of intervention,” Halpenny wrote. “The key justification for intervention is of course now present.”

The Swiss franc climbed to parity with the U.S. dollar yesterday for the first time in 19 months. The Swiss National Bank declined to comment on the franc’s drop today, SNB spokesman Werner Abegg said. The Bank for International Settlements also wouldn’t comment.

“Our traders are confident that the SNB was in the market to sell the franc,” said Kasper Kirkegaard, an analyst in Copenhagen at Danske Bank A/S, the Nordic region’s second- largest lender. “It fits well with the level of the franc and even more important with the pace of the decline.”

Fed officials said in minutes of their Nov. 3-4 meeting released on Nov. 24 that the dollar’s decline has been “orderly” and that they would watch for any signs that the depreciation is pushing up people’s expectations for inflation.

‘Gradual Decline’

Eisuke Sakakibara, formerly Japan’s head foreign-exchange official, said yesterday in a CNBC interview that the U.S. dollar may fall as low as 85 yen and the Japanese government might consider intervention at this amount.

Sakakibara told the financial-news channel he thought U.S. Treasury Secretary Timothy Geithner wants a “gradual decline” of the dollar to correct large trade imbalances, and wouldn’t be inclined to intervene now.

Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

Japan’s government needed to take steps to prevent a strengthening yen from damaging the country’s economy, the head of a steel industry group said.

Yen ‘Problem’

The current level of the yen was a “problem” for steel mills and their customers, Japan Iron & Steel Federation Chairman Shoji Muneoka said today at a press briefing. He is also the president of Tokyo-based Nippon Steel Corp., Japan’s largest mill.

“As long as export volumes are expanding, the most recent appreciation of the yen won’t send the Japanese economy back into a serious recession,” said Taro Saito, senior economist in Tokyo at NLI Research Institute Ltd.

Demand for the yen also increased as dollar loans remained cheaper than those in the Japanese currency.

Three-month yen London interbank offered rates, or Libor, stood at 0.301 percent yesterday, higher than the 0.256 percent rate for dollar loans, according to British Bankers’ Association data. Dollar loans became cheaper than those in yen for the first time in August.

Treasury Yields

“Recent declines in Treasury yields are also lending additional impetus for the weakness of the dollar against the yen,” said Toshiya Yamauchi, manager of the foreign-exchange margin-trading department at Ueda Harlow Ltd. in Tokyo.

Ten-year Treasury yields fell three basis points yesterday to 3.26 percent, the lowest since Oct. 9.

The euro retreated from near a 15-month high against the dollar as the European currency’s 14-day stochastic oscillator rose to 97 yesterday, above the 80 level some traders use to signal that an asset has risen too quickly and is poised to fall.

“The euro has definitely been overbought on the charts,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “This is a technical-related reason for the euro to be sold.”

Vietnam’s dong fell to a record low after the central bank devalued the currency to curb quickening inflation and a widening trade deficit. Stocks dropped and headed for the worst week since October 2008.

The State Bank of Vietnam yesterday set the reference rate for today’s trading 5.2 percent lower at 17,961 against the dollar, after the difference between spot and black-market rates widened to the most in a decade. The dong has fallen 5.4 percent this year, set for a second annual decline.

The dong declined 3.3 percent to 18,488 against the dollar as of 3:41 p.m. in Hanoi, according to data compiled by Bloomberg. It earlier traded as low as 18,500, 3 percent weaker than the reference rate.

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net