Nov. 27 (Bloomberg) -- The yen strengthened to a 14-year high against the dollar, climbing past 85 to the greenback and prompting speculation Japan will intervene in markets to preserve the nation’s export-led economic recovery.
Japan’s currency pared most of its gain after Finance Minister Hirohisa Fujii said he will contact U.S. and European officials about exchange rates if needed. The Bank of Japan checked rates at commercial banks in Tokyo, seen as a type of verbal intervention, Kyodo News Service reported. The yen and dollar rose versus their main counterparts after Dubai’s proposal to delay debt payments fueled a slide in higher- yielding assets.
“Below 85 yen we’ll see a gradual increase in intervention rhetoric,” said Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc in London. “The Japanese economy is already lagging from the impact of the exchange rate. It seems the market underestimated the implications of what came out of Dubai and we’ve seen a scramble to close down short-term positions.”
The yen climbed as high as 84.83 per dollar, the strongest level since July 1995, before trading at 86.26 as of 8:27 a.m. in London, from 86.59 yesterday in New York. The currency appreciated to 128.09 per euro, from 130.03, after reaching 126.91, the highest level since April 29. The euro dropped to $1.4854, from $1.5019.
New Zealand’s currency slid as much as 3.3 percent to 59.91 yen, the lowest level since July 16, and has dropped 6.1 percent this month. The so-called kiwi weakened to 70.41 U.S. cents, from 71.54 cents.
‘Systemic Risk’
“A combination of systemic-risk fears and thin market liquidity due to the U.S. holiday season has proven to be a combustible mix,” Gareth Berry, a Singapore-based currency analyst at UBS AG, wrote today. “The wider fallout has simply revealed how fragile both markets and risk appetite still are.”
The dollar headed for the worst month since December against the yen before a report next week that economists said will show U.S. business activity declined, supporting the case for the Federal Reserve to keep borrowing costs near zero.
The Institute for Supply Management-Chicago Inc.’s business barometer fell to 53 in November from 54.2 the prior month, according to a Bloomberg News survey before the Nov. 30 report. The Institute for Supply Management’s factory index dropped to 54.8 in November from 55.7 in October, according to a separate Bloomberg News survey before the data is released next week.
Futures on the Chicago Board of Trade showed yesterday a 30 percent chance the Fed will raise rates by June, down from 67 percent odds a month ago.
Three-month yen London interbank offered rates, or Libor, stood at 0.296 percent yesterday, higher than the 0.254 percent rate for dollar loans, according to British Bankers’ Association data. Dollar loans became cheaper than those in yen in August.
‘Benign Neglect’
“Unless the U.S. drops its benign-neglect policy on the weakness of the dollar and until its interest-rate outlook improves, the yen will remain hostage to appreciation risk,” said Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd.
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.
Shizuka Kamei, Japan’s financial services minister, today urged for an international response to halt the yen’s advance, while Trade Minister Masayuki Naoshima said the stronger currency “is threatening the competitiveness of Japanese exporters.” Fujio Mitarai, head of Japan’s biggest business lobby and chief executive officer of Canon Inc., said Japan needs “urgent steps to counter this critical situation.”
‘Some Respect’
“The market showed some respect to a stronger warning from the government today and bought back the dollar,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “The impact of verbal intervention will not last so long unless the government takes actual action.”
Japan hasn’t sold its currency since March 16, 2004, when it traded around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the rate fell as low as 147.66.
“At a time when the recovery is expected to be gradual, an appreciating yen is of extreme concern,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The government will take some kind of action.”
Stocks Fall
The Nikkei 225 Stock Average sank 3.2 percent, on course for a 9.5 percent slide this month. The MSCI Asia Pacific of regional shares lost 3.2 percent.
“The stability of the yen is indispensable to reinvigorating the stock market,” said Haruki Takahashi, general manager of equity dealing at Mitsubishi UFJ Securities Co. “Stock investors are crying for help. If the current situation continues, the Kabuto-cho will become a ghost town.” Kabuto-cho is the region in the capital where the Tokyo Stock Exchange is located.
The Australian and New Zealand dollars weakened after Dubai’s attempt to reschedule debt sparked a global slump in equities. Dubai World, with $59 billion of liabilities, has sought a “standstill” agreement from creditors.
“Coming into November month-end and then year-end, we are going to see more pressure on equity markets,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “Because the Aussie and kiwi have been the outperforming currencies on the way up, we’d expect them to suffer in this kind of mood.”
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