The yen rose against the dollar after Malaysian Prime Minister Mahathir Mohamad called for Japan to curtail its currency's 3 1/2-month slide and said he may have to scrap Malaysia's peg to the dollar.
Mahathir joined officials in China and South Korea in pressuring Japan to halt the yen's drop because it erodes the competitiveness of their exports. The yen rebounded from a three-year low Wednesday as Japanese officials, who had encouraged the decline to help boost the economy, said it had fallen too fast.
"There's been an increase not only in the quantity but in the forcefulness of comments from China, Malaysia, and [South] Korea about yen weakness and that's going to keep" it from falling, said Dustin Reid, a currency strategist at UBS Warburg LLC in Stamford, Connecticut.
The yen will likely rise amid "obvious concern in Asia about a weak yen possibly destabilizing economies," he said.
Japan's currency strengthened to ?131.14 per dollar from ?132.39 late Friday, still down 0.7 percent this week.
It has fallen about 12 percent since reaching ?115.83 on Sept. 20, its strongest level in seven months.
The yen gained to ?117.62 against the euro, from ?118.05 late yesterday. The dollar was unchanged at US$0.8925 per euro, for a 0.4 percent gain on the week.
Japan's Prime Minister, Junichiro Koizumi, told Mahathir in a meeting that Japan "will try to ensure the yen will not fall further," Mahathir said. Malaysia's government may review the three-year-old peg of 3.8 ringgit to the dollar if the yen falls beyond ?140 or if China ends the yuan's dollar link, he said.
China wants Japan to curb the yen's decline to prevent the depreciation of other Asian currencies, said Chinese Foreign Ministry spokesman Sun Yuxi, Xinhua news agency reported. The drop will hurt economic and financial stability in Asia, Sun said.
Japanese officials reversed their previous comments on the yen, saying since Wednesday that the currency's 8.6 percent drop in the past two months has been too abrupt. Previously, they indicated they would tolerate declines, which analysts said was an attempt to make their goods cheaper abroad and inflate overseas earnings of Japanese companies in yen terms.
Zembei Mizoguchi, director-general of the international bureau at Japan's Ministry of Finance, said "a stable, not rapid, correction is desirable" from yen strength last year. "We will be closely watching the currency market," he said.
Minister of Economy, Trade and Industry Takeo Hiranuma said the yen probably won't weaken beyond ?135 per dollar. His remarks came after Finance Minister Masajuro Shiokawa said yesterday the currency's decline had been too "rapid."
A weaker yen is one of the few options Japan has left to stimulate growth as the third recession in a decade deepens, analysts said. The central bank has already lowered its benchmark interest rate to zero in a failed bid to spur borrowing.
For Sony, the second-biggest maker of consumer electronics, a ?1 decline against the dollar adds ?6 billion to ?8 billion to its annual operating profit, company spokesman Kei Sakaguchi said this week.
The dollar extended loses against the yen and fell against the Swiss franc and British pound after Federal Reserve Chairman Alan Greenspan said in the text of a speech to the Bay Area Council Conference that it's "premature to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold."
"He's cautious about the recovery and it seems he's referring to lowering rates possibly again at the next meeting" of the Fed's Open Market Committee, said Urit Bocian, a currency trader at Israel Discount Bank. That prospect may weaken the dollar in the near term, she said.
The US government said there was a larger-than-expected decline last month in US producer prices. Falling prices suggest the Fed has room to lower interest rates again.
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