By Stanley White Dec. 17 (Bloomberg) -- The dollar declined to a 13-year low against the yen after the Federal Reserve cut its target interest rate to a range from zero to 0.25 percent, making the greenback the lowest-yielding currency of industrialized nations. The greenback also fell to a 11-week low against the euro as the central bank said it will expand debt purchases to fight the recession, adopting a policy known as quantitative easing. The British pound was near the weakest on record against the euro before the Bank of England releases minutes from its Dec. 4 meeting, when policy makers cut borrowing costs to the least since 1951. “Last week we sold the dollar against the euro and the Australian dollar, and we may add to these positions,” said Akira Takei, general manager for international bonds who helps oversee the equivalent of $2.46 billion at Mizuho Asset Management in Tokyo. “The Fed’s alternatives are diminishing. Among investors, there will be less confidence in the dollar.” The dollar fell to 88.32 yen, the lowest since August 1995, before trading at 88.33 yen as of 1:52 p.m. in Tokyo from 89.05 yen late yesterday in New York. Against the euro, the dollar declined to $1.4165 from $1.4002 yesterday, after touching $1.4191, the weakest level since Sept. 30. The Australian dollar rose to 70.22 U.S. cents from 69.43 U.S. cents. The euro was at 125.20 yen from 124.71 yen. The dollar may decline to $1.45 per euro by the end of March, Takei said. The pound traded at 90.17 pence per euro from 89.94 pence yesterday, when it reached an all-time low of 90.50 pence. Sterling rose to $1.5675 from $1.5581. ‘Second Arrow’ The Fed lowered its target rate from 1 percent. Nine rate cuts in the past 14 months and $1.4 trillion in emergency lending failed to reverse the longest recession in a quarter- century. Chairman Ben S. Bernanke said in a Dec. 1 speech that the Fed will need to focus on “the second arrow in the central bank’s quiver -- the provision of liquidity.” The Fed’s statement yesterday noted it has already announced it will buy agency debt and mortgage-backed securities. The central bank said it is ready to expand such quantitative easing and is weighing the potential benefits of buying longer- term Treasuries. Yields on two-, five-, 10- and 30-year U.S. government debt yesterday touched the lowest levels since the Treasury began regular sales of the securities. The fed funds target has fallen below the Bank of Japan’s 0.3 percent rate for the first time since 1993. Japanese policy makers struggled in the 1990s to revive growth as the combination of deflation and recessions stranded the nation in the so-called Lost Decade. No Intervention Japan isn’t considering intervening in currency markets now, Finance Minister Shoichi Nakagawa told reporters today in Tokyo. Central banks intervene when they buy or sell currencies to influence exchange rates. “The Fed is saying providing liquidity is more important and that the dollar is a secondary concern,” said Tohru Sasaki, chief strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. “As long as the dollar declines gradually, it’s not a problem for yields and inflation. The Fed can concentrate on providing liquidity.” The dollar may decline to 85 yen by June, he said. The Fed’s debt purchases will cause the dollar to weaken to $1.4860 per euro, strategists led by Robert Sinche, New York- based head of global currency strategy at Bank of America, wrote in a research note yesterday. The Fed has reduced the scarcity of dollars and investors have slowed the deleveraging process, which drove the greenback to a 2 1/2-year high against the euro in October, Sinche said. ‘Temporary Supports’ “Those temporary supports for the dollar appear to have eroded,” Sinche wrote. “Aggressive quantitative easing by the Fed should add to U.S. dollar supply globally and undermine the value of the dollar.” The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 1.2 percent to 79.747. “The impact on the dollar is negative,” said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, a unit of Britain’s second-biggest lender. “In a financial crisis a central bank should buy whatever it deems fit. The Fed hasn’t set any target to its quantitative easing. One risk is this will damage the central bank’s balance sheet.” The U.S. currency may decline to 85 yen in the next six months, he said. Dollar Decline The dollar has fallen 14 percent from a 2 1/2-year high of $1.2330 per euro on Oct. 28 on reduced demand for short-term funding in the greenback. The cost of borrowing in dollars for three months in London fell yesterday on speculation policy makers will keep pumping cash into money markets to spur bank lending. The London interbank offered rate, or Libor, that banks say they charge each other for such loans dropped 0.02 percentage point to 1.85 percent, the lowest level since September 2004, British Bankers’ Association data showed. The pound fell against the euro on speculation minutes from the U.K. central bank’s meeting earlier this month will show policy makers voted unanimously to lower borrowing costs to 2 percent to combat a recession. The BOE will release the minutes at 9:30 a.m. in London. ‘Pound Heavy’ “Negative comments from the BOE minutes are likely to keep the pound heavy for now,” Brian Kim, a Stamford, Connecticut based currency strategist at UBS AG wrote in a research note yesterday. “A unanimous decision will not be a surprise, given increased downside risks to U.K. economic growth and deflationary concerns.” The U.S. currency has fallen 21 percent against the yen this year, the most since 1987, as more than $1 trillion of credit-market losses sparked a seizure in money markets and threw the U.S. economy into a recession. The Group of Seven, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, propped up the dollar in 1995, when it declined to a post-World War II low of 79.75 yen. The last time policy makers intervened, Japan sold a record 20.4 trillion yen ($231 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar. Japan hasn’t bought yen since 1998, when it spent 3.05 trillion yen as the currency reached as low as 147.66. To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net.

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