Yen Weakens as Inflation Report Dims Prospects of Higher Rates
By Kabir Chibber and Ron Harui
Aug. 25 (Bloomberg) -- The yen fell to a one-month low against the dollar after a smaller-than-expected increase in consumer prices damped speculation the Bank of Japan will lift borrowing costs a second time this year.
Japan's currency also touched a record low versus the euro on concern the world's second-largest economy still has some way to go before overcoming seven years of deflation. Chief Cabinet Secretary Shinzo Abe said Japan's central bank needs to exercise ``careful'' judgment on economic and price trends.
``It makes it less likely that the BOJ will move on rates this year,'' said Daragh Maher, a currency strategist in London at Calyon, the securities unit of Credit Agricole SA. ``That puts the yen under downward pressure.''
The yen slid to 117.21 per dollar at 6:50 a.m. in New York, the lowest since July 26, from 116.54 yesterday. Japan's currency has lost 1.2 percent this week. It was at 149.67 versus the euro from 148.74, after reaching a record 149.77.
The dollar was little changed against the euro before Federal Reserve Chairman Ben S. Bernanke addresses a Fed symposium in Jackson Hole, Wyoming. It traded at $1.2770 from $1.2764.
Losses in the yen accelerated after the dollar broke through 116.65 yen, where traders had orders to buy the U.S. currency, said Tsutomu Soma, a currency dealer at Okasan Securities Co. in Tokyo. More dollar-buying orders are likely to have been placed at 117.00, he said. Traders sometimes place automatic orders to limit losses in case bets go the wrong way.
Below Forecasts
Core consumer prices, which exclude fresh food, rose 0.2 percent last month from a year earlier, the statistics bureau said in Tokyo. That's less than half the 0.5 percent median forecast of 29 economists Bloomberg surveyed.
``The pace of price increases is really slow,'' said Masaki Fukui, an economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender by assets. ``It will reduce already bearish expectations of further BOJ increases this year. This isn't yen positive at all.''
Japan's central bank increased the benchmark overnight lending rate to 0.25 percent from near zero on July 14. Economists are divided on when the bank will increase rates again this year. BOJ Governor Toshihiko Fukui said Aug. 11 that changes in inflation calculations won't affect the bank's view that prices are rising after seven years of deflation.
The government opposed the BOJ's previous rate increase in August 2000. Seven months later, the central bank had to cut rates back to almost zero as the world economy slowed.
`Snap Decision'
``Japan has yet to conquer deflation,'' Yasunari Ueno, chief market economist and currency analyst in Tokyo at Mizuho Securities Co., a unit of Japan's second-largest lender by assets, wrote in a report today. ``There is no small chance the BOJ's snap decision to raise rates in July will be regarded as a mistake.'' The yen may fall to 150 per euro in three months, Ueno forecast.
Speculation the central bank will be in no hurry to raise rates again has prompted Japanese investors seeking higher yields to send money abroad. Japanese five-year bond yields headed for the biggest drop in almost three years.
They were net buyers of 546.1 billion yen ($4.7 billion) in foreign bonds in the week ended Aug. 19, according to figures based on reports from designated major investors released by the Ministry of Finance in Tokyo yesterday.
``The markets expect the BOJ to hike rates very slowly,'' said Shahab Jalinoos, head of Asian currency strategy at ABN Amro Bank NV in Singapore. ``This encourages the momentum of money leaving Japan and the yen continues to under perform.''
The yen may fall to 118 to the dollar in a month, he said.
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