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Dollar Set for Postwar Low of 79.75 Yen, Barclays, JPMorgan Say

Dollar Set for Postwar Low of 79.75 Yen
A dealer works behind the U.S. and Japanese national flags at a foreign exchange brokerage in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

The dollar may extend declines toward a record against the yen after sliding to a 15-year low as the Federal Reserve said it would maintain bond holdings, Barclays Bank Plc and JPMorgan Chase & Co. said.

The only target left for the dollar is 79.75 yen, which was reached in April 1995, said Masafumi Yamamoto, chief currency strategist at Barclays in Tokyo. The level was the weakest since Japan scrapped the yen’s peg of 360 against the dollar in 1971.

“The Fed has shifted its focus to quantitative easing to support growth from credit easing,” Yamamoto said. “That’s pushing down the dollar and Treasury yields.”

The dollar was at 85.00 yen as of 12:06 p.m. in Tokyo, from 85.32 yesterday in New York, when it touched 84.73, the lowest since July 5, 1995. Two-year Treasury yields were at 0.50 percent, after falling to a record 0.4892 percent yesterday.

The dollar may drop to as low as 83 yen this month, even as Japanese officials are likely to increase verbal intervention, Yamamoto said. Finance Minister Yoshihiko Noda said yesterday he is watching currency movements very closely.

The Fed Open Market Committee decided on Aug. 10 to reinvest principal payments on mortgage holdings into long-term Treasury securities. It said in its policy statement that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

Quantitative easing programs involve acquiring assets including mortgages and government securities to cut borrowing costs and stimulate growth.

Fed Easing

The Fed’s stance reinforced the declining trend of the dollar and Treasury yields, said Junya Tanase, chief currency strategist in Tokyo at JPMorgan Chase. If stocks decline further amid investors’ risk aversion, “the dollar may head for a postwar low against the yen in about a month.”

The MSCI Asia Pacific Index of shares lost 1.5 percent, declining for a fourth day. MSCI’s World Index and the Standard & Poor’s 500 Index both tumbled 2.8 percent yesterday.

Japan’s currency was pegged to the dollar in 1949 as part of a U.S. plan related to the Bretton Woods system.

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