The yen slipped from a one-month high against the dollar after comments from a top Ministry of Finance official stoked investors' concern the Bank of Japan will sell yen in a bid to boost exporters' earnings.
Haruhiko Kuroda, vice finance minister of international affairs, said the yen's climb in recent days ``doesn't reflect fundamentals'' in the economy, and that policy makers are watching the currency. Speculation the Bank of Japan might step into the currency markets may keep this week's gains of 1.2 percent against the dollar and 2.2 percent versus the euro from extending into next week, analysts said.
"Kuroda's comments are a reminder to the market that Japanese officials are ready to intervene to curb any undue yen appreciation," said Alex Beuzelin, a currency analyst at Ruesch International in Washington. "The last thing Tokyo wants to see is an appreciating yen, because it will only hurt exports and compound the recession."
Japan's currency weakened to ?120.50 per dollar from ?120.11 late yesterday. It then rebounded to ?120.25. Prior to Kuroda's comments, it had strengthened to a one-month high of Y?119.77 per dollar. One euro bought ?107.43, little changed from ?107.24. The dollar was little changed at US$0.8937 per euro, from US$0.8924 on Thursday.
The yen's climb past the ?120-per-dollar level on Friday "raises the risk of intervention," said Robert Lynch, a currency strategist at BNP Paribas.
Government estimates that Japan's economy will post its biggest decline since 1980 this fiscal year reinforced the view a weaker currency is needed to boost growth, analysts said.
Japan's government said today the economy will probably shrink 0.9 percent in the fiscal year ending March 31, the worst performance in more than 20 years. The contraction may damp demand for financial assets in Japan. The Nikkei 225 stock average fell to a one-month low after the government's announcement.
The Bank of Japan sold ?3.2 trillion (US$26.5 billion) on seven days in September to stem the currency's rise. The move helped weaken the yen from a seven-month high of ?115.83 in the middle of September to as far as ?123.35 in late October.
Still, the dollar pared its climb against the yen and weakened against the euro as U.S. stocks declined on concern about corporate profits. Stocks also fell after Moody's Investors Service cut its credit rating for Enron Corp, the largest energy trader, to its lowest investment-grade rating.
"The general selloff in US stock markets [on Friday] takes some of the luster off the dollar,'' said Charles Spence, director of foreign exchange sales at ING Baring (US) Capital Markets.
"There's some concern over the downgrade of Enron which, though expected, is a bit disconcerting to the markets."
The US currency had little reaction after a University of Michigan study showed consumers were more upbeat about their finances and economic prospects this month than they were in October. The university's preliminary index of consumer sentiment for November was 83.5, better than economists' forecasts it would read 78, and compared with 82.7 last month.
A separate report that US producer prices fell at a record pace in October as slumping consumer demand forced businesses to charge less, didn't move the dollar either. The overall price index fell a record 1.6 percent last month, four times as much as forecast. Core producer prices, excluding food and energy costs, fell at a 0.5 percent pace.
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