By James Amott
London, July 4 (Bloomberg) -- The yen dipped to the lowest level in almost three months against the dollar after Haruhiko Kuroda, the currency chief at Japan's Ministry of Finance, said he would allow the currency to decline.
Japan's vice finance minister for international affairs said ``it's appropriate to see the yen rise or fall as long as it reflects economic fundamentals.'' Japan's economy shrank 0.2 percent in the first quarter and many analysts expect the economy lapsed into recession in the second quarter.
The yen traded as low as 125.03 per dollar before rebounding to 124.43, compared with 124.39 late yesterday. It last traded weaker than 125 per dollar on April 10. Against the euro, it was at 105.08, compared with 105.51. The yen has fallen 8 percent against the dollar and risen 2.6 percent against the euro this year.
``Policy makers want to see a weaker yen, there's no doubt about that,'' said Michael Klawitter, a market strategist at WestLB. ``They're having to intervene verbally very frequently to try to manage the yen down to 130.'' He sees the yen at 127 per dollar at the end of July.
Japanese officials are trying to weaken the yen to bolster Japan's sputtering economy through export-led growth, although they want to distance themselves from appearing to do so, many analysts and investors said. A controlled descent to about 130 yen per dollar may be their aim, analysts said.
`Masters'
Japanese Finance Minister Masajuro Shiokawa said today ``I think it's a good line'' if the yen trades at about 110 to the euro. That's more than 4 yen weaker than its current price. Shiokawa also said he doesn't expect the Japanese economy to contract this fiscal year.
``The Japanese are masters of verbal and actual intervention -- they believe they can control the markets,'' said Tim O'Dell, who helps oversee about $25 billion at Investec Asset Management. He said he is ``short the yen in general. You have to think the yen will appreciate to think it's worth owning.''
Some analysts said the yen rebounded as traders reassessed Kuroda's remarks.
``There's nothing new here,'' said Steven Saywell, a currency strategist at Citibank. ``It's all very non-committal.''
Japanese exporters may also have helped the yen rebound as they took advantage of the currency's fall to bring home overseas earnings. The dollar hasn't held above 125 yen since the beginning of April, and the rise to that level may have prompted exporters to convert earnings to yen while it lasted.
The yen has tumbled in recent months as reports suggested the world's No. 2 economy is already in recession, while the U.S. appears to be rebounding, analysts said. Slower growth tends to hurt a currency by making financial assets less appealing.
Recent figures in Japan have shown declines in business confidence, household spending, retail sales and industrial production.
``Japan looks very bad,'' said Klawitter. In contrast, ``there are some indications the U.S. may have bottomed out.'' O'Dell at Investec also said the worst may be over in the U.S.
Euro Slips
The euro fell to its lowest this week against the dollar on expectations the European Central Bank won't cut its benchmark interest rate from 4.5 percent tomorrow. The single currency was at 84.47 U.S. cents, compared with 84.83 late yesterday.
While business and consumer confidence fell yesterday for a fifth month in the euro economies, inflation is persistently holding above the European Central Bank's ceiling of 2 percent, making it difficult for the central bank to lower borrowing costs for a second time this year, analysts said.
ECB President Wim Duisenberg said yesterday the region's interest rates are at an ``appropriate level.'' Of 30 economists surveyed by Bloomberg News, 22 expected the central bank to keep its rate unchanged.
``In light of yesterday's comments by Duisenberg, it would be a very peculiar and self-immolating move if the ECB cut,'' said O'Dell at Investec. ``Until yesterday I thought there was a good chance of a cut. We're modestly long on the euro,'' which remains ``a hostage to fortune,'' he said.
Reports today in the 12 nations sharing the euro showed producers raised their prices less than expected in May, while retail sales rose in April for the first time in three months.