Yen Weakens as Japan’s Kan Says He’d Like Currency to Decline

By Yasuhiko Seki and Ron Harui

Jan. 7 (Bloomberg) -- The yen fell against the dollar and the euro after newly appointed Japanese Finance Minister Naoto Kan said he would like the currency to fall “a bit more.”

The Japanese currency declined versus all of its 16 major counterparts after Kan said in his inaugural press conference that he will try to keep the yen at an appropriate level. The dollar strengthened on speculation the Chinese central bank is preparing to withdraw stimulus measures, curbing demand for higher-yielding currencies.

“It was reconfirmed that Kan doesn’t want a rising yen to hurt the economy in a clear difference from his predecessor,” said Keiji Matsumoto, a strategist in Tokyo at Nikko Cordial Securities Inc. “It is apparent that Kan won’t tolerate a stronger yen.”

The yen dropped to 92.66 per dollar as of 7:25 a.m. in London from 92.32 yesterday in New York. The Japanese currency slipped to 133.32 per euro from 133.01, after earlier climbing to 132.40. The dollar rose to $1.4360 per euro from $1.4408.

Kan said today in Tokyo that “we will make efforts to make the yen an appropriate level while considering various impacts on the economy that may be caused by currencies.” While the yen has had a large correction since reaching a 14-year high in November, “I hope it will correct a bit more,” he said.

The yen earlier rose against the euro and rebounded from a 15-month low against the Australian dollar as Asian stocks fell and concern about Dubai’s financial well-being resurfaced.

Japanese Contractors 

The Nikkei newspaper reported today a group of Japanese contractors may suspend construction of the Dubai metro due to late payments from the government, without citing anyone.

“Concerns that Dubai may halt payments are causing equity selling and sparking risk aversion,” said Satoshi Okagawa, head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “There’s buying of the yen against the crosses and purchasing of the dollar versus the euro.” 

The MSCI Asia Pacific index fell 0.4 percent and the Nikkei 225 Stock Average dropped 0.5 percent.
A group of Japanese contractors including Obayashi Corp. and Mitsubishi Heavy Industries Ltd. may halt construction on Dubai’s subway project because of late payments, the Nikkei said.

The dollar strengthened after China’s central bank sold three-month bills at a higher interest rate for the first time in 19 weeks after saying its focus for 2010 is controlling the record expansion in lending and curbing price increases.

“The Chinese central bank’s action came as a negative surprise,” said Kumiko Gervaise, a Tokyo-based currency analyst at Gaitame.com Research Institute Ltd., a unit of Japan’s biggest currency margin trader. “Higher-yielding currencies showed a knee-jerk reaction to this news, and the safe-haven currencies were bought back.”

Australian Dollar 

The Australian dollar earlier rose to a 25-year high against the pound after a report showed the nation’s retail sales climbed in November by the most in eight months. Sales rose 1.4 percent from October, when they gained a revised 0.4 percent, the Bureau of Statistics said in Sydney.

“The surprisingly strong Australian data dispelled concerns about prospects for higher-yielding currencies,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. “With speculation waning about an early exit from credit easing in the U.S., carry trades may resurface, funded in the dollar and the yen.”

Carry trades involve the purchase of higher-yielding assets with amounts borrowed in nations with lower interest rates. The benchmarks of 0.1 percent in Japan and zero to 0.25 percent in the U.S. have made the yen and dollar popular for funding such transactions. Australia’s key rate is 3.75 percent.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: January 7, 2010 02:37 EST