The yen weakened for the first day in four against the dollar and the euro in Asia as record oil prices prompted a slump in Japan's Nikkei 225 Stock Average. High energy costs may sap consumer spending and curb demand for Japan's exports. Economy Minister Heizo Takenaka yesterday said rising oil prices ``may have a serious effect on Japanese and global economies.'' Japan imports almost all its oil. ``Given the environment, falling stocks are inevitable and that makes it hard to buy yen,'' said Minoru Shioiri, foreign exchange manager in Tokyo at Mitsubishi Securities Ltd., a unit of Japan's second-biggest lender. ``There's a strong relationship between rising oil prices and Japan's economy.'' Against the dollar, the yen fell to 111.18 at 1:46 p.m. in Tokyo, according to electronic currency dealing system EBS, from 110.57 late yesterday in New York. Japan's currency may fall to 111.50 today, Shioiri said. Against the euro, it dropped to 133.77 from 133.33.
Crude oil futures rose on concern the Organization of Petroleum Exporting Countries is unable to boost production enough to meet rising demand. Crude oil for September delivery rose as much as 10 cents to $44.25 a barrel in electronic after- hours trading on the New York Mercantile Exchange. That's the highest since futures started trading in 1983. The Nikkei 225 Stock Average fell as much as 2.3 percent to a more than two-month low. In the past three months, the yen's moves against the dollar have had a correlation of 0.852 against the Nikkei, according to Bloomberg data. A reading of 1 would mean they moved in lock step. ``If we see oil at and above the $44 mark, certainly the yen is going to suffer,'' said Jack Rosenthal, manager at Custom House Global Foreign Exchange in Sydney.
`Doesn't Make Sense'
The dollar rose to $1.2032 per euro from $1.2060 on speculation reports starting today will show accelerating U.S. economic growth, bolstering chances the Federal Reserve will raise interest rates next week. In July, the U.S. service industry expanded and employers added double the jobs in June, reports today and Friday are expected to show. The figures add to expectations a slowdown in June was temporary and fan speculation the Fed will lift interest rates at each of its four remaining meetings this year. Economists at all 22 U.S. government securities dealers that trade with the Fed predict it will raise its target rate by 25 basis points to 1.5 percent at its Aug. 10 meeting. The rate will rise to 2 percent or more by year-end, 18 of them predicted, according to a Bloomberg News survey in July, matching the European Central Bank's key rate. ``As we're looking for more signs of an economic pickup after a second-quarter lull, selling the dollar now doesn't really make sense,'' said Yusuke Fujisawa, a portfolio manager at Dai-Ichi Kangyo Asset Management, which oversees the equivalent of $17 billion for Japan's biggest bank. ``People bought the dollar because they put faith in Greenspan.''
`Looks Shaky'
The yen rose 13 percent against the dollar in the fiscal year ended March 31 as overseas investors were record buyers of Japanese shares. The currency fell 0.6 percent last week after a report showed foreign investors were net sellers of stocks for the first week in seven through July 23, according to the Ministry of Finance. The average weekly net purchase of Japanese shares from abroad has more than halved this fiscal year. ``The price of oil is becoming the dominant determinant for dollar-yen,'' said David Mozina, currency strategist in Sydney at ABN Amro Holding NV. ``The equity market looks shaky, which is also bad.'' In other trading, the British pound fell to $1.8229 from $1.8268. The Swiss franc dropped to 1.2809 from 1.2781. ///www.bloomberg.com