The yen rose from a three-year low against the dollar, in its biggest gain in more than four months, after Japanese Finance Minister Masajuro Shiokawa said the currency's 1.3 percent decline yesterday was "too rapid."
The currency's climb was a reaction to Shiokawa "tapping on the brakes," said Dustin Reid, a currency strategist at UBS Warburg LLC in Stamford, Connecticut. "I don't think anyone wants to see that kind of aggressive" decline in the yen, he said.
Japan's currency rallied 1.3 percent to ?132.95 per dollar on Friday from ?134.68 on Thursday, when it sank to its weakest level since October 1998 at ?135.14. It climbed to ?114.57 per euro from ?115.75, after a 1.1 percent fall yesterday. For the week, it rose 1.1 percent against the dollar and 1.5 percent against the euro.
Shiokawa is one of three Japanese officials this week who tried to stem the currency's slide. Bank of Japan Governor Masaru Hayami and the director-general of the Japanese Ministry of Finance's international bureau, Zembei Mizoguchi, said the government shouldn't guide the yen lower. Mizoguchi said a rapid move in the yen is "undesirable." Japan has been under pressure from other Asian nations, including China and South Korea, to stem the yen's decline because it makes their exports less competitive. Japanese officials are also concerned that a weakening currency will reduce the value of yen-denominated investments, dimming foreign demand for stocks and bonds.
With the government "coming out and being less supportive of a weak yen, it isn't a one-way bet anymore," said Stuart Kinnersley, who helps manage US$4 billion at Nikko Global Asset Management in London. Japan's economic prospects "remain negative," which will weaken the yen to ?140 by year-end, he said.
Japan's currency has fallen 15 percent against the dollar since September, as officials encouraged a decline to help boost exports. They said the currency should reflect prospects for an economy in its third recession in a decade. Contributing to the yen's rebound today were Japanese companies and investors taking advantage of its drop past ?135 per dollar to bring overseas profits home before the end of the fiscal year on March 31, analysts and traders said.
"We saw some Japanese exporters taking advantage of that and they can buy some cheap yen above" that level, said Henry Wilkes, head of European foreign-exchange sales at Brown Brother Harriman & Co in London. "That will happen every time we get above 135" in coming weeks, he said.
The Nikkei 225 stock index's 29 percent drop during the past year has also prompted investors to bring foreign assets home to bolster their balance sheets. Japan's Topix stock index slumped to its lowest level since April 1985.
"The Nikkei falling under 10,000 and having crossed below the Dow [Jones Industrial Average] brings up the repatriation theme" by Japanese companies with profits in the US, said Grant Wilson, a senior currency trader at Mellon Financial Corp in Pittsburgh. "Since we're heading into February, the biggest month of Japanese repatriation toward their year-end, they could come into the market and push dollar-yen a little bit lower."
Declines in the yen accelerated yesterday after Standard & Poor's said it may reduce Japan's credit rating for a third time in a year because the economy has fallen into a "worrisome deflationary recession." The agency later said it has "no intention to downgrade Japan at the moment."
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