The yen’s gains against the dollar may be “coming to an end” as investors have already priced in another round of monetary easing by the Federal Reserve, a former top Japanese currency official said. “The market has mostly factored in possible actions by the Fed” at its next policy board meeting in November, said Makoto Utsumi, 76, who led Japan’s currency policy from 1989 to 1991 as vice finance minister for international affairs. Even if the Fed eases monetary policy further, “there will be no need to worry much about currencies being affected more from it,” he said in an interview in Tokyo yesterday. Group of Seven finance heads warned last week that a currency “war” caused by countries weakening their currencies to boost exports could hobble world growth, and finance ministers and central bankers of the G-20 nations are due to meet next week in South Korea. The prospect of a slower U.S. expansion and further easing by the Fed pushed the dollar to a 15-year low against the yen yesterday. “There’s no fundamental reason for the yen to strengthen,” said Utsumi, who conducted Japan’s currency intervention after the signing of the Plaza Accord in 1985. “The more the yen strengthens, the bigger the reversal could be.” Fed Expectations The yen traded at 81.41 against the dollar as of 12:11 p.m. in Tokyo, after advancing to 80.89 yesterday, the strongest since April 1995. Japan’s currency has climbed 14 percent against the U.S. currency this year. The Fed purchased $300 billion of Treasuries in 2009 under a policy known as quantitative easing and traders are preparing for another round of buying they’ve dubbed QE2. Meantime, the Bank of Japan last week pledged to keep its benchmark interest rate at “virtually zero” until deflation has ended. Utsumi, now the president of Japan Credit Rating Agency Ltd., said the yen’s gains may also be limited because Japan’s interest rates have been lower than those of other major economies, and its public debt is high, approaching double the size of gross domestic product. He said Japan’s economy has grown more slowly than those of the U.S. and Europe. The yield on Japan’s benchmark 10-year bond was at 0.895 percent today, compared with the 2.49 percent yield on 10-year U.S. Treasuries. “The nation’s public debt conditions are far worse than Greece,” Utsumi said. Global Scrutiny Utsumi said Japan probably won’t return to the long-term, large scale yen-selling campaigns of the past because of global scrutiny over intervention. Japanese authorities intervened in currency markets last month for the first time since 2004 and Finance Minister Yoshihiko Noda said today the government remains ready to take “bold” action if needed. The former official also said currency devaluation will likely be the main topic at the G-20 meeting next week and it’s natural for some countries to think emerging nations, including China and Korea, should “follow the rules of the game” as members of an international community. Japanese Prime Minister Naoto Kan this week urged China and South Korea to stop preventing its exchange rate from appreciating, comments that were met with protests from policy makers in those countries. Utsumi said the BOJ’s 5-trillion yen asset purchase program broke a “considerable taboo” of central banks purchasing assets to stem price declines. The measures may be the bank’s most effective policy tool in preventing asset values from dropping, he said. The fund will purchase government bonds and assets including exchange-traded funds and real-estate investment trusts, the central bank said last week. To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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