Yen sets new three-year slide


The poor performance of Japan's economy, and its stock market, are the underpinnings of the yen's weakness

TOKYO, Japan -- The yen broke through the 129 barrier on Friday, putting pressure on other Asian currencies.

The yen crested in Asian trade on Friday, then went further in European trade to hit 129.69, another in a string of three-year weak levels.

Japan's Finance Ministry has fueled the yen's rise, with a series of comments indicating to traders that Japan welcomes a weaker currency.

Zembei Mizoguchi, head of the ministry's international bureau, reinforced that impression on Friday.

When asked what he thought about the yen's recent weakness, he said it was a correction of excessive strength, driven by economic fundamentals.

Currency experts had also expected the Japanese currency to rise above 129 after it broke through "resistance" at 128.50 on Thursday, when comments by officials caused a sudden move that triggered a lot of automatic selling.

Cause for concern

Analysts think Japan prefers a yen closer to 130 to the dollar than 120, because it makes Japanese goods cheaper, boosting exports.

The yen's move has been rapid, though, considering it stood at 121 to the dollar a month ago. Officials have admitted that the speed of the weakening is cause for concern.

Japanese Vice Trade Minister Katsusada Hirose said on Friday that it is important for currencies "to move in a stable manner."

Sudden declines in a currency's worth undermine faith in the country's financial system and make it harder for companies trading with companies there.

Carefully watched

The yen's move is also being carefully watched elsewhere in Asia. The Korean won and the Taiwanese dollar have weakened in sympathy, with Korean and Taiwanese companies needing to keep pace with cheaper Japanese exports.

So far, central bankers in both countries have done little to stem the slide in their currencies' value. But a Bank of Korea official on Friday said excess volatility in the won as the yen weakens is "undesirable."

Currency traders are watching to see if the yen goes through 130 to the dollar. That would cause the Korean won and the Taiwan dollar to weaken very quickly against the greenback, Bank of America stated in a report.

The Singapore dollar and Thai baht have also lost ground to the dollar.

James Malcolm, a currency strategist with J.P. Morgan in Singapore, said on Thursday that a yen around 130 now feels like the 145 yen exchange rate from 1998, in the aftermath of the Asia financial crisis.

That's because Japan has been in deflation, meaning prices and overseas buying power have been moving backwards, while U.S. prices have been going up under mild inflation.

He does not expect the yen to move much beyond 130 to the dollar in the next few months as a result, though some experts see it rising to 140 or higher.