Yen Falls as BOJ's Fukui Says No Preset Time for Rate Increase

By Min Zeng and Kim-Mai Cutler


Nov. 13 (Bloomberg) -- The yen fell against 16 of the most- traded currencies as Bank of Japan Governor Toshihiko Fukui said there was no set time for raising interest rates.
Japan's yen weakened more than 2 percent against the currencies in New Zealand and Australia after the BOJ held its overnight lending rate. The decline started after Japanese Prime Minister Yasuo Fukuda warned about the yen's fast advance in a Financial Times interview. The dollar fell versus 13 of 16 major currencies after a United Arab Emirates central bank official said the country's dollar peg was at a ``crossroads.''
``The yen is getting a double-whammy,'' said Samarjit Shankar, director of global strategy for the Global Markets group in Boston at Bank of New York Mellon, the world's largest custodian bank with over $20 trillion in assets under administration. ``It is very hard for the BOJ to raise interest rates. If they raise rates, it will further encourage yen buying, which may hurt exporters and growth.''
The yen fell 0.7 percent to 110.17 per dollar at 9:09 a.m. in New York, after rising to as high as 109.13 yesterday, the strongest level since May 17, 2006, as credit-loss concern pushed investors to trim higher-yielding assets funded by loans in Japan. The yen declined 1.3 percent, the most since September, to 161.07 per euro.
Investors bought higher-yielding currencies in Canada, Brazil and South Africa where interest rates are between 10.75 and 4 percentage points more than Japan's 0.5 percent borrowing cost, the lowest among major economies.
Dollar Falls
The dollar fell 0.5 percent to $1.4606 per euro following a 1 percent gain yesterday. The U.S. currency touched $1.4752 on Nov. 9, the lowest since the European currency started trading in January 1999. The dollar has weakened 4.2 percent against the euro and 5.1 percent versus the yen after the Federal Reserve cut interest rates for the first time since 2003 on Sept. 18.
The U.S. currency is likely to fall to as low as $1.50 per euro and 105 yen before the end of the year, according to Shankar.
Economic data this week are forecast by economists to show weakness in U.S. housing and consumer spending, which may raise speculation the Fed may cut interest rates a third time this year in December.
Council Decision
The dollar declined after comments from United Arab Emirates central bank Governor Sultan Bin Nasser al-Suwaidi fueled speculation the country may end its fixed-exchange rate against the U.S. currency.
``We have reached a crossroads now with a further deterioration in the U.S. dollar and expected further weakening of the U.S. economy,'' Reuters cited him as saying in Tokyo today.
The U.A.E. has no plans to drop the peg alone and any decision will be made by the Gulf Cooperation Council ``at the right time,'' he said, according to the report.
The country may join Kuwait in dropping the dollar peg as inflationary pressure from European imports makes a fixed- exchange rate unsustainable, Merrill Lynch analysts said in a note on Nov. 8.
The Bank of Japan voted 8-1 to keep the country's benchmark rate unchanged, spurring investors to sell the yen after it reached a 1-1/2 year high yesterday against the dollar.
The BOJ outlook may encourage traders to resume carry trades, in which they borrow in a country with low interest rates and invest the funds in a currency where rates are higher, earning the spread between the borrowing and lending rates.
``Expectations of low rates mean there's no reason to buy the yen aggressively,'' said Nobuaki Tani, client manager in Tokyo at Resona Bank Ltd., a unit of Japan's fourth-largest publicly traded lender.