Yen hits 3-year low

December 14, 2001 Posted: 0924 GMT

LONDON, (Reuters) - The yen sank to three-year lows against the dollar and two-year lows against the euro on Friday as the market braced for next week's Bank of Japan meeting which may announce new policies to weaken the yen.

The euro, meanwhile, rose to five-week highs against the dollar above $0.90 following the release of minutes from the Federal Reserve's rate-setting meeting on November 6 which raised the possibility the U.S. rate cutting cycle may be at or near an end.

Against a background of weakening economic fundamentals and a widespread belief that the Japanese authorities would like to see a weaker yen to help exports, speculation has been raging that the BOJ may adopt a new policy of foreign bond buying to drive the yen to still lower levels against the dollar.

“Basically the speculation about further BOJ action at the forthcoming meeting is keeping the yen under pressure,” said Ian Stannard, foreign exchange strategist at BNP Paribas.

The yen was down 1.3 percent from the New York close against the dollar, trading around 127.70 and was off 2.0 percent against the euro to around 114.90.

The dollar was looking shaky against the euro and the Swiss franc, off around a percent against each. The dollar slid to a low of $0.9017 against the euro and 1.6357 against the Swiss franc.

JAPANESE OFFICIALS UNFAZED BY YEN FALL

The latest signal that the Japanese authorities are content to see the yen depreciate came from Japanese finance ministry official Zembei Mizoguchi who said the recent slide in the yen reflected a correction of the yen's strength in the summer.

“As I've been saying from before, (recent forex moves) reflect a correction of the yen's strength, which had deviated from economic fundamentals, since the summer,” Zembei Mizoguchi, head of the MOF's International Bureau, told Reuters.

Dollar-buying accelerated overnight after the greenback rode over a year-to-date high of 126.84 yen, on which many players were focusing.

“The break through that level was very significant and provided the momentum for the move,” said Stannard.

Concerns about the Japanese banking sector added to the gloomy picture for the yen.

The Nikkei share average closed slightly higher, but this masked big falls by shares of debt-ridden giant retailer Daiei Inc and Asahi Bank Ltd which fell over 18 percent.

The dollar vaulted nearly 1-yen in Tokyo trade to 127.62 yen at one point, its highest level since October 1998, from 126.04 yen in late U.S. trade.

“After the dollar hit this year's high many players -- life insurance companies, funds and programme players -- all started to buy the dollar,” said Shogo Nagaya, manager at Nomura Trust and Banking in Tokyo.

FED MINUTES RAISE QUESTIONS

With the market swamped by worries about the Japanese economy, a mixed set of data on the U.S. economy released on Thursday hardly affected the market.

But the release of minutes from the Fed's November 6 meeting showing that three FOMC members had favoured a 25 basis point cut rather than the 50 basis point cut which actually took place was taken badly by U.S. stock markets and the dollar.

“The market is now going to take the view that the current easing cycle is slowing or coming to an end and this hurts equities and that hurts the dollar,” said Stannard.

The Nasdaq index closed down 3.2 percent on Thursday with the Dow off by 1.3 percent.

U.S. industrial production figures for November are due at 1415 GMT.