The yen had its biggest weekly decline against the dollar in three years as investors dumped Japanese stocks after the government said it won't implement new measures soon to pull the economy out of recession.
Demand for yen fell as the Nikkei 225 stock average extended its slump to two weeks. The currency's declines erase about three-fourths of its gains this month, which were spurred by companies' repatriation of profits and government efforts to prop up share prices before the March 31 end of Japan's fiscal year.
"We've gotten back to reality again -- the Japanese economy is weak," said Stephen Gallagher, an economist at Societe Generale. The country "depends on exports" and will need a weak yen to make its products cheaper abroad and fuel growth, he said.
Japan's currency declined to ?132.82 per dollar on Friday from ?132.07 Thursday as Economy and Fiscal Minister Heizo Takenaka said Japan has "no plan" for more measures by month-end to spur growth. The yen has lost 3 percent since last Friday, the most in a week since February 1999.
The yen also fell against the euro, shedding 2.2 percent in the week to ?116.45 per euro.
The Nikkei average is still up 7.2 percent this month, rebounding from an 18-year low in February, after the government curbed short-selling -- where investors bet shares will fall.
The government has tried to boost stocks out of concern that losses on shareholdings may bankrupt some banks when they have to report the value of their assets at market price at month's end, analysts say.
The rally that sent the yen to a three-month high against the dollar two weeks ago has faded as investors concluded the government was only trying to boost share prices through March 31, setting them up for a possible decline after that. Japanese bank stocks were the biggest losers on Friday.
Foreign investors last week were net sellers of Japanese shares for the first time in three weeks, showing they have started to pull their money out of the country after tapping into the rally earlier in the month. Foreigners unloaded US$470 million more of stocks than they bought, according to the Tokyo Stock Exchange.
The Bank of Japan said in a report on Friday prospects are growing for an economic rebound because increased demand from abroad is boosting Japanese exports, which account for a tenth of the country's output. Yet the economy is in a "fragile state" because business and consumer spending is weak, the bank said.
"It's too early for the yen to enjoy unilateral strength," said Peter Lucas, who manages ?1.1 billion (US$1.6 billion) at Ashburton Ltd in Jersey, Channel Islands. "The best we can hope for the yen is a trading range between ?125 [per dollar] and the high ?130s."
The yen may extend declines as traders anticipate Japanese investors will start to ship funds overseas once the new fiscal year begins, say analysts. Money has been flowing the other way of late. Japanese investors have sold foreign securities the past four weeks, dumping a net US$17 billion worth before the end of the fiscal year.
Traders have speculated some of the demand for dollars in recent days has been from Japanese investors who plan to buy US assets in the months ahead as the world's biggest economy picks up. Sakura Investment Management Co and Kokusai Asset Management Co are among Japanese money managers who have said in recent weeks they may invest more in the US come April.
Evidence is mounting that the US economy is leading a global rebound: jobless claims are falling and manufacturing is picking up. By comparison, the economies of Japan, Germany and France contracted in the fourth quarter. Japan is in recession for the third time in the past 10 years.
Tim Moloney, a currency strategist at Deutsche Bank, said the government's decision not to implement more measures to boost the economy may slow the yen's descent.
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