London, Dec. 16 (Bloomberg) -- The yen weakened for the first day in four against the dollar on concern the Bank of Japan will sell the currency to spur an export-led recovery. Japan's currency weakened to 120.94 yen to the dollar at 9:30 a.m. in London, from 120.50 in late New York trading Friday. The yen had the biggest gain against the dollar in five months last week. It strengthened to as much as 120.33 yen to the dollar on Friday, compared with 125.50 the previous Friday. ``People are cautious about the yen, because the risk is that the Japanese authorities will do something'' to weaken the currency, said Rob Hayward, a strategist at ABN Amro. A weaker currency may help prevent the world's second-largest economy from slipping into its fourth recession in a decade. Japan's overseas shipments have dropped while the yen gained 9 percent this year, making Japanese products more expensive abroad and reducing profits for exporters.
``We will take firm steps against volatile movements of the currency,'' Vice Finance Minister Toshiro Muto said at a twice- weekly press conference. The yen's gain of about 5 yen against the dollar last week was ``a volatile move,'' he said. Muto's comments come after Senior Vice Finance Minister Takayoshi Taniguchi said Japan would take ``decisive action'' if the yen rises further. Large manufacturers expect the dollar to average 122.19 yen in the fiscal year ending March 31, the Bank of Japan said on Friday.
`Nervous'
``The fact that the yen has risen past the level exporters want has to make the Ministry of Finance very nervous,'' said Hiroshi Sakuma, associate director of foreign exchange at Barclays Bank Plc in Tokyo. Concern that Japan will sell the yen may push the currency to 121 to the dollar, he said. The Bank of Japan sold 4 trillion yen ($33.1 billion) in May and June, a record for one quarter. The last time the bank sold the currency was on June 28, when the dollar traded between 118.40 yen and 120.26 yen. BOJ sales aren't limited to Tokyo trading hours. The yen has been benefiting from reduced demand for the dollar and U.S. assets on concern the U.S. will attack Iraq. The U.S. currency was trading near the lowest level against the euro in almost three years. The dollar was at $1.0219 to the euro, from $1.0241 in New York late Friday, when it touched $1.0257. Europe's common currency was at 123.65 yen, from 123.39. ``We're going to get a continuance of dollar selling,'' said Kurt Magnus, head of foreign exchange sales at Westpac Banking Corp. in London. ``The market's factoring in that a conflict in Iraq is going to be inevitable.''
Iraq
The United Nations increased its team of inspectors in Iraq to search for evidence of chemical, biological and nuclear arms programs. U.S. President George W. Bush has threatened to use force to oust Iraqi leader Saddam Hussein if he doesn't comply with demands to disarm. Iraq's deputy prime minister said a U.S. attack on Iraq will ``certainly'' raise the threat of terrorism against the U.S., which may undermine consumer confidence. ``The hatred against the United States will reach its peak,'' should the U.S. move against Iraq to rid the country of weapons, Tariq Aziz said on the ``Fox News Sunday'' program. Gold for immediate delivery was near its highest since October 1997 in London trading as declines in the dollar and U.S. equities increased the metal's allure as an alternative investment. President George W. Bush's choice of John Snow to be the next Treasury secretary is also hurting the dollar on concern Snow may allow the currency to weaken to boost U.S. exports, investors said. Snow, chairman of U.S. rail company CSX Corp., is a member of the Business Roundtable, an executive group that has urged Bush to weaken the dollar. ``The combination of geo-political risk with the uncertainty about the change at the Treasury is pushing the dollar down,'' said Chris Loong, Sydney-based manager of foreign exchange at AMP Global Investors, which has about $150 billion under management. In other trading, the dollar was at $1.5886 to the British pound, from $1.5916, and 1.4453 Swiss francs, compared with 1.4427. //www.quote.bloomberg.com