Tokyo, April 10 (Bloomberg) -- The yen might fall to as low as 130 tothe dollar because it's likely Japan is already in recession, saidEisuke Sakakibara, nicknamed `Mr. Yen' for the influence he oncewielded in the currency market. ``Some analysts are predicting the yen will soon reach 130 to thedollar,'' Sakakibara, who was vice finance minister in charge ofinternational affairs from 1997 to 1999, said in an interview. ``I thinkit's possible.'' The yen rose today, to recently be trading at 124.43 to the dollar,from 125.10 in late New York trade yesterday. It's fallen 15 percentthe past year, last week reaching a 2 1/2-year low of 126.84 to thedollar. The yen's decline reflects the slowdown in economic growth andconcern the government won't carry out the reforms needed to boostgrowth, he said. Gross domestic product was probably unchanged orfell in the first quarter, and the second quarter may be even worse,meaning the economy might already be in recession, he said. ``In such a case it's natural that the yen would weaken,'' saidSakakibara, who is now a professor and director of Keio University'sGlobal Security Research Center. The U.S. will keep its policy of supporting a strong dollar, he said,because changing the policy would hurt its economy and stockmarket. ``I don't think the U.S is in a position to change the strong dollarpolicy because their economy and stock market are in a veryprecarious condition,'' Sakakibara said. ``A sudden shift in theircurrency policy will be detrimental to their markets and economy.''
Bond Market Bubble
Separately, Japan's bond market is a bubble waiting to burst,Sakakibara said. ``There is a very high risk here -- it may be theriskiest part of Japan's markets.'' Ten year bond yields last month fell to a 2 1/2-year low of 1.02percent, down 61 basis points from the start of the year. Ten- yearbonds were recently yielding 1.352 percent. Investors would be better off keeping their money in cash or buyingU.S. treasury bonds than holding Japanese government bonds, hesaid. ``The U.S. economy is said to be in bad shape,'' he said. ``Thatmeans interest rates will fall and the value of treasuries will rise.Rationally speaking, it's a way to shift the money from Japanesebonds to treasuries.'' The Bank of Japan's decision last month to inject more money intothe banking system to guide interest rates to zero came ``too late,''Sakakibara said. ``The BOJ should have taken these measures at the end of lastyear,'' he said. ``And it's only effective when done with structuralreforms.''