Yen trade-weighted value hits 21-year low in Jan
Friday, February 02, 2007 1:40:39 AM (GMT-06:00)
Provided by: Reuters News
TOKYO, Feb 2 (Reuters) - The yen's real trade-weighted value hit a 21-year low in January, highlighting the currency's broad weakness that has become the centre of attention for officials from major economies before next week's Group of Seven meeting.
Bank of Japan data showed on Friday that the central bank's index for the yen, after adjusting for the inflation rates of Japan and its trading partners, fell to 97.7.
That was the lowest level since September 1985, the time of the Plaza Accord, when the Group of Five nations agreed to devalue the dollar against the yen and German mark to help reverse a gaping U.S. trade deficit.
The yen's woes have provided a fillip to the export-driven economy by making Japanese goods comparatively cheaper, propelling exports to a record high in 2006.
But the Japanese currency's long slide has increasingly drawn the ire of European officials, who have said they plan to make its weakness a topic at the G7 meeting of finance ministers and central bankers in Germany next week.
U.S. and Japanese officials have been less vocal, with U.S. Treasury Secretary Henry Paulson saying the yen reflects Japan's economic fundamentals and struggle to pull out of deflation.
The yen has suffered as investors see the BOJ taking its time in raising rates further from 0.25 percent, well below those in other major economies.
The BOJ has pinned rates so low because Japan's longest economic expansion since World War Two has failed to see consumer prices rise much, with the core consumer price index gaining just 0.1 percent in December from a year earlier.
In January the yen hit an all-time low against the euro near 158.60 yen <EURJPY=R> and a four-year low versus the dollar at 122.20 yen <JPY=>. The Japanese currency also hit a 14-year trough against the British pound and 10-year low versus the Australian dollar.
Japan's extremely low interest rates have prompted many domestic households to seek better returns in foreign assets, while a variety of investors have borrowed the low-yielding yen and use the funds to buy higher-yielding currencies in the carry trade.
The BOJ's real effective exchange rate index for the yen fell some 6 percent in January from a year earlier and was down 33 percent from its most recent peak of 144.9 hit in November 1999.
Japan's vice finance minister for international affairs, Hiroshi Watanabe, has played down the real effective exchange rate as a gauge of the yen, saying Japan's decade-long bout of deflation exaggerates the yen's weakness on a REER basis.
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