Business-Insider

The following is a Bloomberg article By Stanley White and Ye Xie
For the full article see: http://bloomberg.com/apps/news?pid=2...NYI&refer=home

March 10 (Bloomberg) -- For the first time in more than a decade, foreign exchange traders are confident that the Bank of Japan won't intervene in the currency market, paving the way for the yen to extend its biggest rally since 2000.

Japanese authorities sold the currency on all four occasions since 1995 when the yen approached the 100 mark in a bid to support exporters from Toyota Motor Corp. to Sony Corp. When the yen strengthened to a eight-year high of 101.43 last week, Finance Minister Fukushiro Nukaga stopped short of signaling that officials are concerned, only saying the government needs to watch currency moves ``carefully.''

An attempt to influence exchange rates would bring Japan into conflict with the U.S., which relies on a weak dollar to underpin an economy on the verge of a recession. Citigroup Inc. and Royal Bank of Scotland Group Plc, the third- and fourth- biggest traders, say Nukaga will let the yen break 100 because it's 40 percent weaker than its peak in 1995 on a trade-weighted basis.

``When I intervened, the U.S. agreed to it,'' said Eisuke Sakakibara, dubbed ``Mr. Yen'' for his ability to influence the foreign exchange market as Japan's top currency official from 1997 to 1999. ``The U.S. now welcomes a gradual decline in the dollar and Treasury takes the position of Detroit. This is affecting how Japan is responding now.''

Japan increasingly relies on Asia for growth, making the country less sensitive to a U.S. slowdown. Shipments to the U.S. accounted for about 20 percent of exports last year, down from about 30 percent in 2000. Asia consumes half of Japan's exports.

Tables Turned

Japan's economy, the world's second largest, may expand 1.5 percent this year, matching the growth rate in the U.S., the International Monetary Fund said on Jan. 29. It would be the first time Japan won't lag behind the U.S. since 1991.

``Compared to the U.S., growth in Japan is relatively robust,'' Sakakibara said. ``The tables have turned.''

U.S. officials probably won't support dollar purchases unless the yen breaks 90 and heads toward 80, said Sakakibara. Central banks intervene in the foreign exchange market when they buy or sell currencies to influence exchange rates.

The yen gained 0.4 percent to 102.24 at 12:51 a.m in Tokyo. Naoyuki Shinohara, currently Japan's top currency official, told reporters today he's ``carefully'' watching the market, reiterating Nukaga's comments.

The yen has gained 19 percent since June, the second biggest advance among the 16 major currencies behind the Swiss franc. Rather than a referendum on the economy, the rally was fueled by losses in the credit markets, which led investors to sell high-yielding assets around the world financed with cheap loans in Japan. They would need to buy yen to pay back the loans.
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