21 January 2003, 10:26  Yen Falls to 3 1/2-Year Low vs Euro on Concern Japan May Sell

Tokyo, Jan. 21 (Bloomberg) -- The yen fell to a 3 1/2-year low against the euro and dropped against the dollar on concern Japan may sell its currency to stem gains that erode exporters' earnings. Japan's currency weakened to 126.53 against the euro, the lowest since June 1999, at 3:43 p.m. in Tokyo, from 126.11 late yesterday in New York. Against the dollar, the yen dropped to 118.93 from 118.03. ``It is hard to buy the yen because of concern Japan may sell,'' said Shigehiro Kamimura, manager of market trading department at Asahi Bank Ltd. The yen may fall to 118.90 against the dollar and 126.70 per euro today, he said. Japan is ``watching the currency market closely,'' Heizo Takenaka, minister for financial services, said at a press conference. The Bank of Japan last sold its currency in June, when the dollar traded between 118.40 yen and 120.26 yen. Japan spent about 4 trillion yen ($3.37 billion) on sales in seven days in May and June, a record for one quarter. The euro's rise against the yen accelerated after it reached 126.30, said Peter Clay, Sydney-based currency strategist at ABN Amro Holdings NV. The dollar's rise against the yen accelerated after it hit 118.40, said Yoshihiko Kobayashi, foreign exchange manager at Bank of America in Tokyo. Traders often place automatic orders to buy or sell to limit losses.
The yen's 6 percent rise against the dollar in the past three months threatens Japan's export-led recovery. Honda Motor Co., Japan's No. 2 automaker, which generates about 80 percent of its operating profit in the U.S., and other exporters may eventually have to reduce their earnings forecasts should the yen extend its gains.
Kuroda
The yen also fell after the Mainichi newspaper reported that former Vice Finance Minister for International Affairs Haruhiko Kuroda will become a senior adviser to Prime Minister Junichiro Koizumi. The prime minister denied the report, telling reporters that the government hasn't decided on the appointment of an adviser. Kuroda wrote an essay in the Financial Times in December saying the Bank of Japan should set an inflation target to halt four years of falling prices. As vice finance minister, a job he left earlier this month, Kuroda called for the yen to weaken. The news that Kuroda may gain the prime minister's ear sent the yen lower, said Robert Rennie, a currency strategist at Westpac Banking Corp. in Sydney. Kuroda is a proponent of sparking inflation and he ``will now be giving Koizumi the advice that he must take on those policies.''
`Actual Action'
Still, Japanese officials may be content with words alone unless the yen strengthens further. ``As long as the dollar stays below 120 yen, officials may keep making efforts to talk the yen down,'' said Tommy Ong, vice president of trading at DBS Group Holdings' Dao Heng Bank in Hong Kong. They won't ``take actual action unless the dollar goes beyond 116.'' The dollar's rise may be limited after the U.S. and U.K. dismissed Iraqi pledges to help United Nations arms inspectors search for chemical weapons, raising concern the U.S. may start a war that will lead to a larger budget deficit. Iraqi officials and the UN chief arms inspectors said in a joint statement Saddam Hussein's regime will search for chemical weapons, answer questions raised by the weapons declaration given to the UN Dec. 7 and ask scientists to accept private interviews. ``It is more of the same,'' U.S. Secretary of State Colin Powell said. ``So far Iraq has not complied.''
War Concern
The U.K. ordered 26,000 troops, as many as 48 helicopters, 120 tanks, 150 armored personnel carriers and 50 artillery units to the Persian Gulf in preparation for a possible attack. The move brings the number of British soldiers heading for the region to 30,000, Defense Secretary Geoff Hoon said. ``A war may deteriorate consumer sentiment in the U.S. and increase its fiscal deficit, thus it's bad for the dollar,'' said Minoru Shioiri, senior manager of the treasury and foreign exchange division at Mitsubishi Securities Co. The dollar may fall to 116.50 yen by the end of this week, he said. The dollar may extend gains on expectations a report today will show U.S. housing starts stayed above the average pace of the last three years. Starts probably registered at an annual rate of 1.68 million units in December, according to the median of 47 forecasts in a Bloomberg News survey. Construction of new homes probably totaled 1.66 million in 2002, the most since 1986, according to statistics compiled by Bloomberg News. Housing construction has kept the economy going as factories battle lackluster business spending, companies delay hiring and consumers' attitudes sour, economists said. //www.quote.bloomberg.com

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