Japan Faces $510 Billion Losses From Yen Sales, JPMorgan Chase & Co. Says

Japan’s government faces almost 40 trillion yen ($512 billion) in losses from intervening in the foreign-exchange markets to stem the yen’s advance, according to estimates by JPMorgan Chase & Co.

Valuation losses on Japan’s foreign-exchange reserves minus yen liabilities totaled 35.3 trillion yen at the end of 2010, according to Finance Ministry data. The losses may swell further as the yen is projected to climb to 72 versus the dollar by September 2012, said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase in Tokyo.

“It’s difficult to change the trend of the currency market” with intervention, said Sasaki, who used to work in the foreign-exchange division of the Bank of Japan, at a forum in Tokyo yesterday. “Even if the action can stem the currency’s gains temporarily, the yen will eventually appreciate.”

Japan on Oct. 31 intervened in foreign-exchange markets to weaken the yen for the third time this year after the currency gained to a postwar record. Finance Minister Jun Azumi said he will continue to intervene until he’s “satisfied.”

Japan may have spent a record amount to stem the yen’s gains, according to the BOJ’s projection of deposits held by financial institutions at the central bank. It estimated that deposits climbed 7.7 trillion yen to a total 37.2 trillion yen, according to a statement released yesterday. The figure suggests that the government sold approximately 8 trillion yen, said Yuichi Takahashi, a market economist at Totan Research Co. in Tokyo.

Weaker Dollar

If investors’ risk aversion subsides, it wouldn’t be surprising if the dollar were to weaken another 10 percent on a trade-weighted basis, Sasaki said. The U.S., which holds the world’s largest current-account deficit, is in an “unprecedented” situation, where it keeps interest rates near zero even though it needs to attract funds from overseas by offering higher yields, he said.

JPMorgan predicts the yen will end the year at 75 per dollar, and rise to 74 by March and 72 by September 2012. The Japanese currency will be at 77 by year-end, 77 by March and 80 by September, according to the median estimates of analysts in a Bloomberg survey.

To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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Japan Faces $510 Billion Losses From Yen Sales

Tomohiro Ohsumi/Bloomberg

Japan on Oct. 31 intervened in foreign-exchange markets to weaken the yen for the third time this year after the currency gained to a postwar record.

Japan on Oct. 31 intervened in foreign-exchange markets to weaken the yen for the third time this year after the currency gained to a postwar record. Photographer: Tomohiro Ohsumi/Bloomberg

4:26

Nov. 1 (Bloomberg) -- Robert Sinche, global head of currency strategy at Royal Bank of Scotland Group Plc, talks about Japan's intervention in the value of the yen, currency markets and the Greece's debt crisis. He speaks with Lisa Murphy on Bloomberg Television's "Street Smart." (Source: Bloomberg)

2:59

Nov. 1 (Bloomberg) -- David Forrester, a Singapore-based currency strategist at Macquarie Group Ltd., talks about the prospects for Japan government intervention in the yen and the outlook for the currency. Forrester also discusses the Australian dollar and Reserve Bank of Australia monetary policy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

3:30

Oct. 31 (Bloomberg) -- Hiromichi Shirakawa, a former Bank of Japan official and now chief Japan economist in Tokyo at Credit Suisse Group AG, talks about the nation's decision to intervene in currency markets to weaken the yen, and central bank monetary policy. Shirakawa speaks with Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

4:37

Oct. 31 (Bloomberg) -- Richard Yetsenga, global head of foreign-exchange strategy at Australia & New Zealand Banking Group Ltd., talks about Japan's decision to intervene in currency markets to weaken the yen. Yetsenga also discusses Europe's sovereign debt crisis, and economies in U.S. and Asia. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

5:28

Oct. 31 (Bloomberg) -- Naomi Fink, head of Japan strategy at Jefferies Japan Ltd., discusses Japan's intervention in markets to weaken its currency and the impact of the yen's appreciation on Japanese corporations and trade. Fink speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)