Yen Plunges as Japanese Official Signals Cut in Growth Forecast
By Agnes Lovasz and Chris Young
Dec. 13 (Bloomberg) -- The yen declined after Japan's Chief Cabinet Secretary Yasuhisa Shiozaki signaled the government will cut its growth forecast for the world's second-largest economy.
The yen slid against all 16 of the most active currencies, touching a record low against the euro, as signs of economic weakness spurred traders to reduce bets that the Bank of Japan will raise interest rates on Dec. 19. Shiozaki said government forecasts will reflect a reduction in its third-quarter estimate.
``The record low against the euro looks to have been spurred by the perception the BOJ won't raise rates in December,'' said Neil Jones, head of European hedge fund sales in London for Mizuho Financial Group Inc., Japan's second-biggest lender. ``It has reignited buying of assets by Japanese investors overseas.''
The yen weakened to 117.12 against the dollar as of 11:26 a.m. in London, from 116.78 late in New York yesterday. It reached a record low of 155.47 versus the euro before trading at 155.39, from 155.13 yesterday. The yen may weaken to 160 to the euro before the end of the year, Jones said.
``Forecasts for the economy will take into account the revision to the third quarter GDP,'' Cabinet Secretary Shiozaki said at a press conference in Tokyo today.
The economy grew at an annual 0.8 percent rate in the three months ended Sept. 30, less than half the initial estimate of 2 percent, the Cabinet Office said on Dec. 8.
The government will cut its target for 2.1 percent expansion in the fiscal year ending March 31 because personal consumption isn't increasing as much as expected, the Sankei newspaper said today, without saying where it obtained the information.
Japan Slowing
The World Bank also today said Japanese growth will slow next year, following cuts yesterday in forecasts for this fiscal year by Morgan Stanley and Barclays Capital.
Morgan Stanley Japan Securities Co. cut its estimate to 2 percent from 2.5 percent and Barclays Capital Japan Ltd. lowered its forecast to 1.9 percent from 2.3 percent. The economy grew 2.4 percent last fiscal year.
``Economic data suggest the central bank won't increase borrowing costs until early next year,'' said Akifumi Uchida, a deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``This may spur selling of the yen.''
The currency may drop to 118 against the dollar and 156 versus the euro this week, Uchida said.
The Bank of Japan meets to decide interest rates for the final time this year on Dec. 18-19. Policy makers raised the overnight lending rate to 0.25 percent in July for the first time in almost six years.
Consumer Spending
Investors lowered bets for a shift in rates this month to 30 percent from 68 percent last week, a Credit Suisse Group report showed, based on contracts for the exchange of interest payments.
The dollar rose against the euro on prospects a U.S. report today will show retail sales rebounded in November, prompting some traders to reduce bets the Federal Reserve will cut rates.
``There's buying in the dollar ahead of the retail sales,'' said Lee Wai Tuck, a currency strategist at Forecast Singapore Ltd. ``It could show consumer spending is doing okay, which suggests the Fed may not cut rates as fast as expected.''
The dollar traded at $1.3270 against the euro, strengthening from $1.3286 yesterday.
Interest-rate futures show the Fed may refrain from reducing benchmark borrowing costs at least until the second half of 2007.
Policy makers yesterday voted 10-1 to leave rates at 5.25 percent for the fourth straight meeting. They pushed borrowing costs higher for two years through June.
The European Central Bank is unlikely to increase its benchmark until June, interest-rate futures show.
European Rates
U.S. retail sales rose 0.2 percent in November, after falling a revised 0.4 percent in October, according to the median forecast of 71 economists Bloomberg surveyed. The Commerce Department data are due at 8:30 a.m. in Washington.
A Labor Department report last week showed employers took on more workers in November than economists had expected.
Interest-rate futures contracts indicate traders see a 28 percent chance the Fed will cut rates by a quarter-percentage point to 5 percent at its meeting on March 21. The odds it will lower the target for the overnight lending rate between banks to 5 percent at a May meeting was 70 percent, the contracts show.
Traders are betting on one more interest-rate increase from the ECB next year after the bank last week pushed borrowing costs higher for a fifth time in 2006, to 3.5 percent.
The yield on the three-month Euribor futures contract for June was 3.915 percent yesterday, from 3.81 percent a week ago.
The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark rate since 1999.
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