Yen Falls From 15-Year High on Speculation Japan Will Intervene

The yen retreated from a 15-year high versus the dollar on speculation Japanese authorities will act to stem gains that risk derailing the nation’s recovery.

The euro rose against the greenback after U.S. new-home sales dropped in July to the lowest on record, adding to concern the world’s largest economy is losing steam. The yen fell from the strongest in nine years versus the euro after Japanese Finance Minister Yoshihiko Noda pledged “appropriate action” concerning its strength. The Swiss franc rose to the strongest ever against the 16-nation currency as investors sought refuge.

“The Japanese government cannot allow the yen to appreciate much further, as it’s going to very negatively affect their export-driven economy,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. “What you’re seeing today is the yen sell off a bit on speculation that the Japanese policy makers will in fact intervene.”

Japan’s currency weakened 0.8 percent to 84.57 yen per dollar at 4:54 p.m. in New York, from 83.90 yen yesterday, when it reached 83.60, the strongest since June 1995. The yen depreciated 1 percent to 107.04 per euro, from 105.97 yesterday, when it touched 105.44, the strongest level since July 2001.

The dollar fell 0.2 percent to $1.2656 per euro after touching $1.2588 yesterday, the strongest since July 13.

Franc Sets Record

The franc reached a record high 1.2972 per euro before trading at 1.3041. It rose against 10 of its 16 most-traded counterparts.

Global stocks fell, with the Stoxx Europe 600 Index ending the day down 0.8 percent. The Standard & Poor’s 500 Index dropped as much as 1.1 percent before reversing losses and gaining 0.3 percent on speculation its recent declines were overdone.

Purchases of new homes in the U.S. last month fell to an annual pace of 276,000, the weakest since data began in 1963, Commerce Department figures showed today in Washington. U.S. durable-goods orders rose 0.3 percent in July, compared with a Bloomberg News survey’s median estimate for a 3 percent gain, the Commerce Department said.

“The overwhelming negativity of this week’s data has diminished some of the dollar safe-haven appeal,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage.

Yen Worst Performer

The greenback slid against most of its 16 major counterparts today, while the yen fell against all of them. Both currencies usually are considered havens.

“There is, as we see the yen remain below 85, a somewhat elevated risk that Japanese officials are not going to sit idly by and allow yen strength to add to a long list of headwinds for the Japanese economy,” Esiner said.

The yen has appreciated 16 percent this year, the biggest gain among its developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The rally has fueled speculation Japan may intervene to curb the gains as they hamper the nation’s export-led economy. Central banks intervene in foreign-exchange markets by buying or selling currencies to influence exchange rates.

“We have to take appropriate action when necessary, though I plan to continue to watch currency movements very closely with great interest,” Noda told reporters in Tokyo today. “My basic understanding is that movements have been one-sided.”

A Bank of Japan program that provides funding to lenders at 0.1 percent may be expanded to 30 trillion yen ($356 billion) from 20 trillion yen, and the duration of the loans may be increased to six months from three, the newspaper Nikkei said.

‘Doomed to Failure’

“Unilateral intervention, especially in today’s economic climate, would be doomed to failure,” Derek Halpenny, European head of foreign exchange at Bank of Tokyo-Mitsubishi UFJ in London, wrote in a note to clients today. “The reality is that the direction of the yen is at the mercy of events abroad.”

Japan hasn’t intervened in the currency markets since March 16, 2004, when the yen was at about 109 per dollar. The Bank of Japan sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. The currency ended 2004 at 102.63 to the dollar. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the exchange rate weakened to 147.66.

Morgan Stanley today ended a bet against the euro, citing the possibility the Federal Reserve will take further action at its policy meeting next month to stimulate the economy.

‘Might Take a While’

“While we have been very vocal in recent weeks calling for dollar strength against the euro, the risk-reward has deteriorated and the risks of further easing measures by the Federal Reserve on Sept. 21 are perhaps building,” analysts led by London-based Stephen Hull wrote in a note today. “While it is likely that European data will eventually slow if the current bout of weakness in U.S. data continues, it might take a while to feed through.”

The Mexican peso dropped for a sixth day against the dollar, matching a losing streak ended May 20, on concern growth is slowing in the U.S., Mexico’s largest trading partner. The peso touched 13.0968, the weakest since July 6, before trading at 12.9911.

Canada’s dollar, nicknamed the loonie, touched $1.0668, also the weakest level since July 6, on concern the outlook for currencies tied to growth was dimming. It ended the day up 0.2 percent to $1.0599 as U.S. stocks reversed losses.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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