The yen fell for the fourth week in five against the dollar on concern Japan's government and central bank aren't doing enough to foster a rebound in the second-biggest economy.
The Bank of Japan ended a meeting today without announcing new measures to combat deflation and spur growth. Some traders had speculated the bank would boost purchases of government bonds, or take other steps to pump more funds into the banking system.
"They seem to be sitting on their hands," said Grant Wilson, a yen trader at Mellon Financial Corp in Pittsburgh, who said he's betting on further yen losses. "Status quo doesn't bode well for that economy."
Japan's currency fell to ?134.64 per dollar, from ?133.79, leaving it about a half-yen from the three-year low it sank to last month. The yen fell to ?117.51 per euro from ?116.36. On the week, it shed 1.2 percent against the dollar and 2.5 percent against the euro.
The yen first strengthened after the central bank's announcement, as some traders had expected a wave of new funds that would cheapen the currency's value.
Pessimism over the Japanese outlook then fueled a sell-off, the traders said.
Finance officials of the G7 major industrialized nations, meeting tomorrow in Ottawa, are expected to urge Japan to bolster its economy. They may say they approve of the yen's drop in recent weeks as a way to support Japanese growth, some traders speculated.
The group includes the US, Japan, Germany, the UK, France, Italy and Canada.
A report on Friday showed Japanese household spending fell in December, cementing a ninth year of declines amid Japan's third recession in a decade. The Nikkei 225 stock average touched an 18-year low this week, amid concern about the viability of some Japanese banks. Those companies rebounded during the past two days on expectations the government will try to prop them up by purchasing shares they hold.
US Treasury Secretary Paul O'Neill said on Friday Japan shouldn't rely on an economic recovery in Europe and the US to end 11 years of sluggish growth.
"I'm still anxious to see Japan take the steps that will put them on the track to growing their economy at a rate that makes them an engine of world growth" and not a "caboose," O'Neill told reporters in Washington, before departing for the G7 meeting.
Nine of 15 economists, fund managers and currency traders polled by Bloomberg News expected Japan's central bank to pump more money into the financial system, leaving additional cash with securities companies and banks to spread through the economy.
"The market was expecting a lot more from Japan," said Murray Gunn, foreign-exchange investment director at Standard Life Investments in Edinburgh, where he helps manage ?78 billion (US$110 billion).
The euro had its biggest weekly gain in two months against the dollar as a report showing stronger-than-forecast German industrial production suggested Europe's biggest economy is pulling out of recession.
The German figures are ``good news for the euro,'' as it shows the economy may be rebounding more quickly than predicted, said Jim McCormick, deputy head of currency research at Lehman Brothers Holdings Inc.
More such data would mean there's "some room for a euro bounce," he said.
Europe's common currency reached its highest level of the day, of US$0.8752, after Germany said industrial production rose in December for the first time in four months, by 1.9 percent from November. Analysts had expected a gain of 0.2 percent.
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