Yen Extends Biggest Losses as G-20 Refrains From Censuring Japan

By Candice Zachariahs and Nicholas Reynolds

Feb. 18 (Bloomberg) -- The yen fell against the dollar, extending losses that made it the worst-performing major currency in the past three months, after the Group of 20 refrained from censuring Japanese policies driving the decline.

The final G-20 communique released in Moscow on the weekend fell short of last week's Group-of-Seven statement and means recent trends in major currencies are now set to resume, Morgan Stanley's foreign-exchange strategy team, led by Hans Redeker in London, wrote in a research note. The fact the G-20 didn't single out Japan means the yen may weaken toward 100 per dollar in the next few months, UBS AG said in a separate report.

"There was a risk that they might have fired a warning shot at Japan," said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia's second-biggest bank by market value. "They didn't do so and that's helped a rise in dollar- yen."

The yen fell 0.2 percent to 93.72 per dollar as of 8:57 a.m. in Tokyo from the close on Feb. 15. It declined 0.1 percent to 125.04 per euro. The single currency fell 0.1 percent to $1.3341.

U.S. financial markets will be shut today for a holiday.

The yen has tumbled 13 percent in the past three months as Prime Minister Shinzo Abe pressured the central bank to step up stimulus. The decline is the most of 16 major currencies tracked by Bloomberg versus the greenback.

No Constraint

Two days of talks between G-20 finance ministers and central bankers ended in Moscow Feb. 16 with a statement pledging not to "target our exchange rates for competitive purposes," without singling out Japan. Japanese officials denied driving down their currency, saying its decline was a byproduct of their effort to revive the economy. U.S. Treasury Undersecretary Lael Brainard criticized "loose talk about currencies," in a speech in Moscow.

"They basically said that the Japanese can continue to pursue their policies to reflate their economy, which the G-20 and the G-7 have called for, for a couple of years now," Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a phone interview Feb. 17. "We'll see the Japanese continue to pursue aggressive fiscal easing and monetary easing, and just not talk about the currency so much."

The main focus for the yen now is on who will be appointed to replace BOJ Governor Masaaki Shirakawa, who intends to step down on March 19, Morgan Stanley analysts wrote in the note published Feb. 16.

Abe is likely to nominate Asian Development Bank President Haruhiko Kuroda, who is set to pursue the government's anti- deflation course, though if he nominates former BOJ deputy governor Toshiro Muto, that may trigger the yen to retrace some of its losses back to 90 per dollar, Morgan Stanley said.

America Supportive

Investors should forget the G-20 and G-7 because their statements didn't single out Japan for manipulating its exchange rate, according to Mansoor Mohi-Uddin, UBS's Singapore-based Global Head of Foreign-Exchange Strategy.

The trend remains for the yen to weaken in the next few months "in a 90-100 range" to the dollar, he wrote. "Moreover, U.S. Treasury Undersecretary Brainard said that while policy makers should avoid 'loose talk' on currencies, she didn't row back from her earlier comments that America was supportive of Japan's efforts to reinvigorate growth and end deflation."


An announcement on who will be the next BOJ governor is expected either before or after Abe meets President Barack Obama in Washington on Feb. 22, Mohi-Uddin wrote.

Japan's currency has tumbled 16 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar fell 1.3 percent and the euro strengthened 3.9 percent.