Japan's Sale of Yen Does Not Alter the Fundamental Outlook, Halpenny Says

Intervention by the Bank of Japan today may not change market fundamentals enough to weaken the yen, according to Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.

Japan sold yen today for the first time since 2004 to stem a surge in the currency to the highest level since May 1995. The currency has rallied 14 percent this year before today, according to Bloomberg Correlation-Weighted Currency Indexes. After the Bank of Japan sold the currency during European and Asian trading sessions, the yen fell 3 percent to 85.57 per dollar at 8:22 a.m. in New York.

While Bank of Tokyo-Mitsubishi has a forecast for a weaker yen during the next year, “I remain skeptical that over the next couple of months whether or not we will have the change in fundamentals that will dictate a weaker yen,” Halpenny said in a “Bloomberg Surveillance” radio interview today with Tom Keene.

The yen climbed this year from 93.02 yen per dollar to as strong as 82.88 as speculation that Europe’s sovereign debt crisis will worsen and the U.S. economic recovery will slow boosted demand for the relative safety of the Japanese currency.

Halpenny said international opposition to “aggressive intervention” by Japan will make the central bank less assertive than the actions six years ago when a sale of 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

“It ultimately goes back to the size of intervention undertaken by the Japanese authorities,” he said.“If that is the situation, then I’m not so sure it’s going to change our view generally on foreign exchange markets elsewhere.”

Bank of Tokyo-Mitsubishi forecasts the yen will weaken to 87 per dollar in the fourth quarter and to 95 by the third quarter of 2011.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net Tom Keene in New York at tkeene@bloomberg.net

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