Dec. 2 (Bloomberg) -- The dollar fell to a record against the euro and declined versus the yen in Asia on speculation Japan and Europe won't unite to stem the currency's drop.

Hiroshi Watanabe, Japan's top currency policy maker, yesterday said Japan and Europe haven't discussed measures to stop the dollar's slide, adding that the two nations can take joint action if necessary. Japan hasn't sold yen since March and the European Central Bank last entered the markets in 2000.

``They can discuss whatever they want, it doesn't mean it's going to happen,'' said Harvinder Kalirai, a market analyst in Sydney at State Street Corp., the world's largest custodian of assets with more than $1.2 trillion under management. ``Any initial intervention is going to be from Japan alone, not coordinated with the ECB. It's going to take a higher euro before the ECB joins Japan.''

The dollar weakened to a record low of $1.3365 per euro from $1.3345 late in New York yesterday, before trading at $1.3358 at 10:10 a.m. in Tokyo, according to electronic currency- dealing system EBS. The ECB may not sell euros before it reaches $1.40, Kalirai said.

The U.S. currency also dropped as low as 102.15 yen before trading at 102.42 from 102.58 in New York and compared with 102.01 on Nov. 26, the weakest in almost five years.

Tacit Approval

San Francisco Federal Reserve Bank President Janet Yellen yesterday said the U.S. trade gap is holding back economic growth. Treasury Secretary John Snow, who sets dollar policy, said in London on Nov. 17 the U.S. supports a ``strong dollar,'' while suggesting the Bush administration will not do anything to support its value. The Fed is in charge of interest rate policy.

``U.S. Treasury officials have really said nothing other than a repeat of the strong dollar mantra,'' said Allison Montgomery, a currency strategist at Westpac Banking Corp. in Sydney. ``The market is still taking it as a tacit approval for a further decline in the dollar.''

Watanabe also said yesterday Japan sees no hurdle in selling yen regardless of how Europe and the U.S. would react, while seeking to conduct currency sales ``in a manner which is effective and least costly.''

His comments came a day after government reports showed factory output dropped the most in eight months and household spending declined for a third month in four. Signs of a slowing economy may fuel speculation Japan will sell yen to stem its currency's three-month 6.8 percent rally against the dollar.

Not Keen

``Japan won't welcome the yen's strength,'' said Tetsu Aikawa, a currency salesman for institutional customers at UFJ Bank Ltd., a unit of Japan's fourth-largest lender. ``Europe already doesn't look keen on taking action, making any joint action even more difficult. The dollar will drop more against the euro than the yen.'' The dollar may fall to $1.35 per euro this year, while the yen's gain may be limited to 102, he said.

The dollar may decline to $1.57 per euro and 87 yen before it finds a ``long-term bottom,'' according to a study by Goldman Sachs Group Inc.

``It seems very hard to believe that the dollar is close to the end of its decline,'' judged by a history of currency crises in other countries, wrote Alberto Ades, director of global markets research, and Jens Nordvig, a market economist at Goldman in New York.

Goldman studied 26 emerging-market currency crises between 1985 and 1999 to estimate how low the dollar may drop to help narrow its record current-account deficit.

Widespread Assumption

Yellen helped send the dollar down almost 1 percent on Sept. 10, when she said the deficit will widen unless the dollar falls.

Overseas investors may curb their financing of the U.S. deficit, Fed Chairman Alan Greenspan said at the European Banking Congress in Frankfurt on Nov. 19. ``A diminished appetite for adding to dollar balances must occur at some point,'' he said.

Fed officials' comments ``reinforce the widespread assumption the Fed thinks a weaker dollar is likely and probably beneficial,'' said Sean Callow, a currency strategist at IDEAglobal in New York. ``We still haven't heard the sort of rhetoric from Snow, the Treasury, or the White House, where they're insisting they have a strong dollar policy, which of course the market takes to be pretty much nothing.''

To contact the reporter on this story: Taizo Hirose in Tokyo at hirose2@bloomberg.net.

Last Updated: December 1, 2004 20:14 EST