Yen Falls on Speculation Kan to Succeed Prime Minister Hatoyama

Japanese Prime Minister Yukio Hatoyama
Japanese Prime Minister Yukio Hatoyama arrives for a meeting with Ichiro Ozawa, secretary-general of the Democratic Party of Japan, unseen, at the Diet in Tokyo. Photographer: Haruyoshi Yamaguchi/Bloomberg

The yen fell against its major counterparts amid speculation Finance Minister Naoto Kan will succeed Prime Minister Yukio Hatoyama and pursue measures to weaken the currency.

The yen declined to the lowest level in two weeks against the dollar after Hatoyama tendered his resignation today as public criticism mounted over his handling of U.S. troop deployments in Okinawa. The euro stayed near its weakest level in four years versus the dollar amid speculation the European Central Bank will tolerate a weaker single currency.

“Markets have been slightly suspicious of Kan’s attitude to the currency,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “He has said that most businesses would prefer a weaker yen and hence the fall.”

The yen depreciated to 91.98 per dollar at 6:58 a.m. in New York, from 90.94 yesterday, after reaching 92, the weakest since May 19. It traded at 112.48 per euro, from 111.22. The euro was at $1.2234, from $1.2229 yesterday, when it touched $1.2111, the lowest since April 2006.

Kan said on his first day as finance chief on Jan. 7 that he wants the currency to weaken “a bit more” after it declined from a 14-year high of 84.83 per dollar in November. He said manufacturers think a range of 90 to the mid-90s is desirable. A stronger yen may erode profits from exporters, who led Japan’s recovery from its worst postwar recession.

Weak-Yen Advocate

Deputy premier Kan, together with National Strategy Minister Yoshito Sengoku and Foreign Minister Katsuya Okada, are likely candidates to replace Hatoyama, said Gerald Curtis, a professor of Japanese politics at Columbia University in New York.

“If Kan, who is an advocate for a weak yen, replaces Hatoyama, investors’ expectations will strengthen for the yen to decline,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest banking group.

Ichiro Ozawa, the ruling Democratic Party of Japan’s top campaign strategist, will also step down as secretary-general, Hatoyama said. The resignations come less than two months before mid-term elections, potentially hindering the DPJ’s efforts to reduce public debt.

Hatoyama stepped down less than a week after the Social Democratic Party left the ruling coalition, following a clash over the relocation of the Futenma Marine Air Base in Okinawa. The government will retain power regardless of the result of upper-house elections this summer because of its majority in the lower chamber.

No ‘Extraordinary Level’

The euro stayed near its four-year low against the dollar on concern that Europe’s efforts to rein in budget deficits will hamper the region’s economic revival.

ECB Governing Council member Christian Noyer said the euro’s current rate is “by no means an extraordinary level,” Germany’s Handelsblatt reported, citing an interview.

European Commission President Jose Manuel Barroso meanwhile called for a “commitment to keep the euro a strong and credible currency” during a news conference today in Vilnius, Lithuania.

Options traders are the most bearish on the euro in at least seven years amid concern that Europe’s banks will face difficulties weathering the region’s sovereign-debt crisis. The premium charged for the right to sell the euro in three months over contracts to buy the currency touched 3.35 percent, the most since Bloomberg began compiling the data in 2003.

Euro-Region Unemployment

Unemployment in the 16-nation euro area increased to 10.1 percent in April, the highest rate since June 1998, the European Union’s statistics office said yesterday in Luxembourg.

“The euro-zone economy will lag behind the U.S. and other counterparts as spending cuts will yield downside pressure,” said Akira Maekawa, a senior economist at the online currency trader Global Futures & Forex Ltd. in Tokyo.

Iran’s central bank began the first phase of sales of about 45 billion euros of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing sources it didn’t identify.

The report was published May 31, according to the newspaper’s website. The central bank is selling 15 billion euros in the first stage of the transactions, the newspaper said.

The New Zealand dollar gained versus the yen on bets the nation’s central bank will increase the benchmark rate from a record low this month. The so-called kiwi climbed 1.5 percent to 62.29 yen.

Rate Increase

Options traders see a 78 percent chance of a rate hike at this month’s policy meeting by the Reserve Bank of New Zealand on June 10, according to an index from Credit Suisse AG.

The Bank of Canada raised its key interest rate from a record low yesterday, the first Group of Seven central bank to do so since July 2008.

“Because the Bank of Canada raised rates last night it opens the door for New Zealand to raise rates next week,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “There are more reasons to buy the kiwi than sell it at the moment.”

Australia’s dollar rose after the government said the economy expanded 0.5 percent in the first quarter and revised up the pace of growth for the final three months of 2009. The currency added 1.7 percent to 76.85 yen.

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