The yen may strengthen to 75 versus the dollar as the U.S. faces the risk of a credit rating downgrade amid an economic slowdown, said Eisuke Sakakibara, formerly Japan’s top currency official. “The U.S. economy is in a worse-than-expected state,” Sakakibara said in an interview in Tokyo yesterday. “The yen may trade in a range of 75 to 80 against the dollar in the not so distant future.” The U.S. currency’s declining trend will continue as Federal Reserve Chairman Ben S. Bernanke signals his intention to maintain record monetary stimulus, Sakakibara said. The dollar-weakening pressure will outweigh the risk of Japan slipping into an “unprecedented recession” in the wake of a record earthquake and tsunami on March 11, he said. The yen traded at 80.51 to the dollar as of 2:36 p.m. in Tokyo. Against nine counterparts in Bloomberg Correlation- Weighted Currency Indexes, the yen is down 4.9 percent this year, the second-biggest decline after the greenback’s 5.6 percent slide. Sakakibara, 70, said Japan is unlikely to intervene in the currency market to stop the yen’s climb because it may not be able to gain international cooperation again. The Group of Seven countries jointly intervened to stem the yen’s gains in March after the currency soared to a postwar record of 76.25 against the greenback, hurting the overseas competitiveness of Japanese companies. Ratings Warnings Moody’s Investors Service said on June 2 it expects to place the U.S. government’s Aaa rating under review for possible downgrade if there’s no progress on increasing the debt limit by mid-July. Standard & Poor’s put the U.S. on notice on April 18 it risks losing its AAA rating unless policy makers agree on a plan by 2013 to cut deficits and the debt. The U.S. would not likely see a big cut in its credit ratings as negotiations between Republican and Democrat lawmakers over raising the debt ceiling will likely be resolved by the August 2 deadline, Sakakibara said. That would prevent an exodus from Treasuries and keep intact the dollar’s status as the world’s primary reserve currency, he said. Yen Advantage The impact of the yen’s gain on Japan’s economy will likely be limited, said Sakakibara, who is now a professor at Aoyama Gakuin University in Tokyo. The currency’s climb has more advantages than disadvantages for Japan, as it will help the nation cope with rising commodity prices, he said. After weakening to 85.83 per dollar on April 6, the Japanese currency rose to 79.70 on June 8, the highest since May 5. Sakakibara said in February that the yen may rise beyond its previous of 79.75 versus the dollar, which had stood since 1995, and stay stronger than 80 this year because of structural weakness of the U.S. economy. In April, he said the yen may weaken beyond 90 per dollar in coming months amid a nuclear crisis in northern Japan following the March temblor. The yen will trade at 86 per dollar by year-end and 88 by March 2013, according to median forecasts of economists and analysts in a Bloomberg survey. Sakakibara became known as “Mr. Yen” during his 1997-1999 tenure at the Ministry of Finance for his efforts to influence the yen rate through verbal and actual intervention in the currency markets. To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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