London, Aug. 17 (Bloomberg) -- The yen, up 1.5 percent against the dollar in the past week, fell after Haruhiko Kuroda, Japan's vice finance minister for international affairs, suggested policy-makers may act to weaken the yen. Kuroda said for a second day that the yen's value doesn't reflect the state of the second-biggest economy and ``Japan will take appropriate action if needed.'' The yen fell to 120.41 per dollar, from 119.78 yesterday. Against the euro it weakened to a three-day low of 110.24 yen, from 109.65. Europe's common currency was trading at 91.52 U.S. cents, compared with 91.58. The dollar has weakened 3.4 percent against the yen and 7.3 percent against the euro this quarter. ``The question is how effective policy-makers can be in shifting the mood toward the yen,'' said Simon Rubinsohn, chief economist at Gerrard Ltd. in London, where he helps manage about 23 billion pounds ($32.7 billion). ``A strong yen is the last thing Japan needs -- the economy is still pretty stagnant.'' Gerrard is ``fairly cautious'' toward Japanese assets, he said. A strengthening currency tends to make Japan's exports less competitive and erode profits Japanese companies earn overseas. The yen's gains have come at a time when the second-biggest economy, which grew 0.1 percent in the first quarter, is on the edge of contraction.

`Verbal Intervention'
``Japan should pull out all the stops to prevent the yen from rising,'' said Steve Barrow, a currency strategist at Bear Stearns International Ltd. ``We've been seeing some verbal intervention.'' The minutes of last month's Bank of Japan board meeting included comments by one member wanting to see a weaker yen. Japan last sold yen against the dollar in April 2000, when it traded at about 103 against the U.S. currency. The BOJ decided on Tuesday to pump 1 trillion yen ($8 billion) into the banking system and increase monthly bond purchases 50 percent to 600 billion yen. That failed to weaken the currency because it was outweighed by concern about flagging U.S. economic growth. The dollar was poised to round out its sixth weekly loss against the euro on investors' expectations a consumer-confidence report today will signal the U.S. economy won't revive soon. That matches the dollar's longest losing streak against the euro since the January 1999 inception of Europe's common currency.

`Through 95'
``The euro is in for a run -- it could go through 95'' in coming weeks, said Rubinsohn at Gerrard, which is ``modestly overweight on U.S. equities'' and ``broadly in line'' with its benchmark on euros. The European common currency rose 2.4 percent against the dollar this week. Yesterday, it reached a five-month high of 92.03 U.S. cents in London trading. ``Increasing pessimism about the economy is likely to persuade some investors to shift money from U.S. assets,'' said Koichi Wakabayashi, a foreign-exchange manager at Fuji Bank Ltd. ``The trend is for a weaker dollar.'' Some better-than-expected U.S. reports in the past few days were overshadowed by the International Monetary Fund's saying the U.S. economy may face a protracted slowdown, and speculation the Bush administration wants to see a weaker dollar. More evidence of slowing in the U.S. came from the Philadelphia Federal Reserve Bank yesterday. It said manufacturing shrank more than expected in August in the region. Today's University of Michigan consumer-sentiment index, due at 3 p.m. London time, probably slipped to 92, from 92.4 in July, according to a Bloomberg News survey.

ECB Cut?
The euro rebounded from earlier losses against the dollar and moved higher against the yen after a report showed inflation in the 12 countries using the euro slowed in July. That was the first drop in six months, and boosted investors' expectations the European Central Bank will cut its key interest rate on Aug. 30. Traders have been rewarding interest-rate cuts in recent months as they encourage economic growth. ECB borrowing costs are at 4.5 percent, compared with 3.75 in the U.S., where traders and investors are also expecting further cuts. The rate on the euro-region interest-rate futures contract for September fell 2 basis points to 4.17 percent. That's 18 basis points less than current three-month lending rates, suggesting investors aren't sure there will be a rate cut by then. The rate on the December contract fell 3 basis points to 3.92 percent. A separate report today showed French industrial production rose in June for a second straight month. Production climbed 0.3 percent from May, following a revised 0.5 percent increase a month earlier, national statistics office Insee said. Economists had expected a 0.2 percent drop in June. Other figures showed companies in France added the smallest number of workers in 2 1/2 years in the second quarter.