By Kim-Mai Cutler and Stanley White Dec. 18 (Bloomberg) -- The yen weakened from near a 13-year high against the dollar and tumbled versus the euro after Japanese officials signaled they may intervene in the foreign- exchange market for the first time in four years. Finance Minister Shoichi Nakagawa told reporters in Tokyo he is “keenly watching” currency markets and has “the means” to limit the yen’s advance. The dollar fell to a 12-week low against the euro on speculation the Federal Reserve’s near-zero interest rate policy will reduce the appeal of U.S. assets. The pound tumbled to a record low against the euro for a ninth day. “We’re seeing increased jawboning by officials, increasing speculation that intervention is imminent,” said Lee Hardman, a London-based currency strategist for Bank of Tokyo-Mitsubishi. “The Bank of Japan may also ease policy, which may slow the pace of yen gains.” Japan’s currency fell to 88.71 per dollar as of 6:20 a.m. in New York, from 87.24 yen yesterday, when it reached 87.14, the highest level since July 1995. It declined to 129.39 per euro, from 125.80 yesterday, its biggest drop in three weeks. The dollar was at $1.4586 per euro from $1.4419, after surpassing $1.46 for the first time since Sept. 28. Japan may step into foreign-exchange markets following the yen’s recent gains, Chief Cabinet Secretary Takeo Kawamura also said today in Tokyo. The government expects the Bank of Japan to respond appropriately to the yen, he said. Central banks buy or sell currencies when they seek to influence exchange rates. The yen gained 26 percent versus the dollar this year. Intervention History “I’m going to refrain from saying now whether we’ll intervene or not, but I have the means” to do so, Nakagawa said at a news conference in Tokyo. The last time Japan intervened on its own, it sold a record 20.4 trillion yen 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. 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. Japan may struggle to reverse the yen’s advance, according to JPMorgan Chase & Co., the world’s sixth-biggest foreign- exchange trader. “Even if Japanese Ministry of Finance intervenes in the dollar-yen market, the impact should be limited and short lived,” analysts including Holly Huffman in New York, Kamal Sharma in London and Tohru Sasaki in Tokyo wrote in a report today. “Japan cannot afford to conduct massive” amounts of sales, they said. Few Tools The dollar declined against the euro on speculation the Fed has fewer tools left to combat a recession after it lowered its benchmark rate to near zero. The Fed lowered its target rate on Dec. 16 to a range of zero to 0.25 percent, from 1 percent, the lowest among major economies. The central bank reiterated plans to purchase agency debt and mortgage-backed securities and said it will study buying Treasuries. Ten-year yields touched 2.0711 percent yesterday, the lowest level since the Fed’s daily data on the securities began in 1962. ‘Destruction’ in Yields “Further destruction in U.S. yields is single-handedly reversing the benefits of previous U.S. dollar safe-haven properties,” a team of Standard Chartered Plc analysts led by Callum Henderson in Singapore wrote in a report today. “Unless other G-7 central banks, with the exception of Japan, the original merchant of zero rates, follow in the Fed’s footsteps, rate differentials will weigh heavily on the U.S. dollar for quite some time.” Standard Chartered cut its dollar forecasts today. The U.S. currency will end the first quarter at $1.50 per euro and 75 yen. Its previous predictions were $1.20 and 95 yen. The British pound tumbled against the euro, surpassing 95 pence for the first time, before trading at 94.32 pence, on speculation the Bank of England may follow the Fed in cutting interest rates to zero. The euro also rose after European Central Bank Executive board member Juergen Stark, speaking in a Manager Magazin interview, underscored the threat of inflation from expansive monetary policies. ‘Out on a Limb’ “The very strong euro is related to the dichotomy between the paths the Fed and ECB are taking,” said Steven Barrow, head of G10 currency research in London at Standard Bank Plc. “The ECB is out on a limb with respect to the rest of the world on rates and that’s what’s creating this strength.” Gains in the euro may be limited as German business confidence dropped to the lowest in more than a quarter century in December as the credit crisis pushes Europe’s largest economy deeper into a recession. The Ifo Institute in Munich said its German business climate index fell to 82.6 this month, the lowest since 1991, from 85.8 in November. Economists in a Bloomberg survey expected a drop to 84. The dollar depreciated 26 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 world’s largest economy into a recession. There is a 54 percent chance BOJ policy makers will lower borrowing costs from 0.3 percent at a two-day meeting starting today, according to calculations by JPMorgan using overnight interest-rate swaps. “I am not going to predetermine that measures should or shouldn’t be used,” BOJ Governor Masaaki Shirakawa said Dec. 16, when asked whether policy makers would consider reintroducing the 2001-2006 policy of pumping cash into the economy while holding borrowing costs near zero. The central bank will implement policy “appropriately,” he said. To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.

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