June 26 (Bloomberg) -- Hiroshi Watanabe will step down as Japan's top currency bureaucrat after presiding over a 12 percent decline in the yen against the dollar, a Finance Ministry official said.

Watanabe will be replaced as vice finance minister for international affairs by Naoyuki Shinohara, the official said on the condition of anonymity. The ministry usually reshuffles its top personnel around this time of the year.

The yen has weakened to a 4 1/2-year low against the dollar and dropped 20 percent to a record versus the euro since Watanabe's appointment took effect on July 2, 2004. Unlike his predecessors, Watanabe never stepped into the market to sell or buy currencies. Shinohara served under Watanabe as the head of the ministry's international affairs department.

``Watanabe has been regarded as a pro-weak yen official,'' said Yuji Saito, head of the foreign-exchange sales department at Societe Generale SA in Tokyo. ``His departure will be used as a yen-buying catalyst, especially by overseas investors.''

The official also said Hideto Fujii, the ministry's top- ranked bureaucrat, will be replaced by Hiroki Tsuda, head of the budget bureau. Fujii served one year as vice finance minister. The appointments were reported earlier today by Reuters.

The yen strengthened to 123.22 per dollar at 5:47 p.m. in Tokyo from 123.67 late yesterday in New York, after Finance Minister Koji Omi said it's important investors realize the risk of one-way bets against the currency.

Carry Trade

Watanabe, 58, played down the risk to Japan's economy from the carry trade, where investors borrow in yen to buy higher- yielding assets. He said last week that estimates the trade has swelled to $1 trillion are ``over-exaggerated.''

Japan's key overnight lending rate is 0.5 percent, the lowest among major economies. That compares with 5.25 percent in the U.S. and 4 percent in countries that share the euro.

The position of top currency official became a focus for traders and investors when Eisuke Sakakibara had the role from 1997 to 1999 and bought and sold trillions of yen. Sakakibara was known as ``Mr. Yen'' because of his ability to influence the level of the currency.

Japan sold a record 20.4 trillion yen ($165 billion) in 2003 and 14.8 trillion yen in the first three months of 2004 under Zembei Mizoguchi, Watanabe's predecessor, the last time the country intervened in the currency market. Japan hasn't bought yen since 1998.

Mizoguchi served for two years and his predecessor Haruhiko Kuroda held the job for more than three years. Kuroda is now president of the Asian Development Bank.

Shinohara joined the ministry in 1975 after graduating from Tokyo University's economics faculty. As well as serving at the ministry's international department, he held positions at the banking and budget bureaus and spent three years as an executive director at the Asian Development Bank.

Shinohara, Watanabe, Fujii and Tsuda were unavailable for comment.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.

Last Updated: June 26, 2007 04:48 EDT