Oct. 9 (Bloomberg) -- Frankfurt Trust, which holds about $20 billion in assets, boosted its yen holdings above benchmark levels for the first time in three years, betting Japan’s new government is willing to allow the currency to appreciate.

The investment-management unit of Germany’s BHF-Bank has an “overweight” position in the yen for the first time since 2006, which means it holds more in its funds than in the indexes its uses to measure performance. The yen will rise further after gaining 1.9 percent against the dollar and 1.8 percent against the euro since Prime Minister Yukio Hatoyama took office on Sept. 16, according to Frankfurt Trust.

“We have turned positive about the yen following the political change in Japan,” Christoph Kind, head of asset allocation at the company in Frankfurt, said in an interview. “The country now has an administration that doesn’t seem to oppose the appreciation of the yen, or least not as much as the previous one.”

During the election the Democratic Party of Japan, led by Hatoyama, said a stronger yen will boost household spending by making imported goods less expensive. The former government focused on public works spending and keeping the yen weak to help exporters.

Finance Minister Hirohisa Fujii reiterated the message on Oct. 6, saying that it’s “undesirable for individual nations to take a weak-currency policy.” Japan may act only if the yen’s movement becomes “abnormal or disorderly,” he said.

The yen traded at 88.86 per dollar as of 11:10 a.m. in London. It will weaken to 92 per dollar by the end of this year, according to the median prediction of 40 analysts surveyed by Bloomberg.

‘No Longer Extreme’

The yen’s trade-weighted index, a gauge of its performance against the currencies of Japan’s trading partners including the dollar, the euro, the pound, the Canadian dollar and the Australian dollar, rose 1.9 percent since Hatoyama took office last month to 123.67. It’s down from 126.61 at the start of the year.

The company’s decision to buy the yen was also driven by diminished differentials between the Japanese official interest rate, at 0.1 percent, and those of other major economies.

The Federal Reserve reduced its target rate in December for overnight loans to between zero and 0.25 percent. The Bank of England cut its key interest rate to 0.5 percent in March. Central banks worldwide cut borrowing costs and pumped billions of dollars into money markets in the past year to overcome the worst global economic slump since World War II.

“For a long time, Japanese monetary policy marked the extreme end of the policy spectrum, but that has changed,” Kind said. “Now we have the U.K. and the U.S., which definitely has one of the most expansive monetary policies around. Japan is no longer an extreme case.”

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

Last Updated: October 9, 2009 06:14 EDT