Mood: happy
May 15 (Bloomberg) -- The dollar fell to an eight-month low against the yen and traded near a one-year low versus the euro on speculation the U.S. administration won't oppose declines in the currency.
President George W. Bush's government sees a weaker dollar as a way to shrink the country's near-record trade deficit, the Wall Street Journal reported on May 13, without saying where it got the information. U.S. Treasury Secretary John Snow said a strong dollar is in the interest of the U.S., Japanese Finance Minister Sadakazu Tanigaki said today in Tokyo, citing a telephone conversation last week.
``The U.S. administration will sit on the sidelines, giving a couple of quotes now and then that they still want a strong dollar, but really not mean it,'' said George Kapasakis, senior currency trader at Mizuho Corporate Bank in Sydney.
The dollar dropped to 109.66 yen as of 1:08 p.m. in Tokyo, and traded down to 109.33, matching the lowest since Sept. 12, from 110.02 in late New York on May 12. The U.S. currency traded at $1.2923 from $1.2926 against the euro, and reached $1.2972, the weakest since May 5, 2005.
The yen also advanced after China's yuan strengthened beyond 8 to the dollar for the first time since a revaluation in July. The yuan traded at 7.9980 per dollar from 8.0062 on May 12, according to data compiled by Bloomberg.
``A stronger yuan means stronger Asian currencies, so you have to take advantage of that through the yen,'' said Kapasakis. The yen will trade beyond 100 versus the dollar in the next 12 months, he forecast.
Japan Surplus
A weaker dollar would increase the attractiveness of American exports, which rose to a record $114.7 billion in March, according to a Commerce Department report on May 12. The decline also increases the cost of imports to the U.S., helping reduce the trade deficit, which widened to an all-time high of $726 billion last year.
By contrast, Japan's current-account surplus rose 33 percent to 2.39 trillion yen ($21.8 billion) from a year earlier, the Ministry of Finance said in Tokyo today. The surplus in the current account, the broadest measure of trade, was expected to widen to 2.02 trillion yen, according to the median forecast of 22 economists surveyed by Bloomberg News.
Sixty-six percent of the 50 traders, strategists and investors surveyed May 12 from Sydney to New York advised buying Japan's currency against the dollar. Sixty-eight percent forecast the euro will rise versus the dollar for a sixth week, the longest streak since August.
`Strong' Dollar
The dollar, down 8.3 percent versus the euro and 6.9 percent against the yen this year, has accelerated its decline since Group of Seven finance ministers April 21 called for some Asian countries to let their currencies appreciate.
Snow told reporters in Washington on May 10 he favors a ``strong'' dollar with its value set by markets.
The dollar may climb on anticipation its drop is overdone, according to technical indicators on charts that traders watch to predict price movements.
The euro's 14-day relative strength index versus the dollar a measure of momentum, was at 82.1 today, the highest since January 2003. The dollar's index versus the yen was 17.3. A level below 30 or above 70 signals a change in direction.
``We might get some consolidation and even see the dollar try and push higher,'' said Joanne Masters, a currency strategist at Macquarie Bank Ltd. in Sydney. The dollar will reach $1.2820 per euro this week, she said.
Fukui
Demand for yen may increase on speculation Bank of Japan Governor Toshihiko Fukui will signal the world's second-largest economy is growing fast enough to withstand higher interest rates, which may lure Japanese investors to keep money at home.
Yields on Japan's 10-year bonds last week rose to the highest since August 1999 after an opinion piece in the Nikkei Financial Daily spurred speculation the central bank will raise rates as early as next month.
The gap in yields between 10-year Treasuries and similar- maturity Japanese bonds was 321 basis points on May 12, compared with 406 basis points on Aug. 11, 2000, when the BOJ last raised its target for overnight loan rates to 0.25 percent.
``The yen will probably grind higher,'' said Yasuhiro Miyata, who helps oversee the equivalent of about $18.2 billion in assets at DLIBJ Asset Management Co. ``There's a high chance that Japan will raise rates this year, at a time when people's focus is shifting to global imbalances, setting the bias for a stronger yen and a weaker dollar.''
The yen may trade between 105 and 115 against the dollar in the next month, Miyata said.
Fukui is speaking at a forum in Tokyo which started from 12:30 p.m. today.