Yen nears a historic low
TUESDAY, SEPTEMBER 26, 2006
SINGAPORE The yen is approaching a 20-year low as individual investors in Japan join speculators on the Chicago Mercantile Exchange in selling the currency.
Measured against currencies of Japan's largest trading partners, the yen is approaching its lowest value since 1985, an index prepared by the nation's central bank shows. Japanese investors last month bought more overseas bonds than ever before. Traders on the Chicago futures exchange have bet $9.74 billion that the yen will decline.
The currency has fallen 4.3 percent against the dollar in the past four months as a rebound in the Japanese economy faltered, suggesting the Bank of Japan will not raise interest rates again this year from 0.25 percent. The prospect that rates will remain among the lowest in the world has prompted Japanese to invest more of their $6.55 trillion in currency and deposits outside of the country.
"We could see more massive outflows," said Lara Rhame, a senior currency strategist at Credit Suisse Group. "It's the yield story that's driving Japanese investors abroad."
The Swiss bank predicts that the dollar will rise to \118 in three months and \120 in a year. Last week the yen gained 0.9 percent, with the dollar finishing at \116.56. The euro rose to \149.
The Bank of Japan's monthly trade- weighted index for the yen was at 102.6 in August. That is within 0.4 point of its lowest since October 1985.
Money managers in Japan tripled purchases of international bonds last month to a net $19.5 billion, according to the government. Total net assets of Japan's foreign-currency funds reached a record \24.2 trillion, or $205.6 billion, in August, up 45 percent from a year earlier.
U.S. and European money managers also are putting pressure on the yen by borrowing the currency at low rates and then investing in countries with higher yields