Posted on: Wednesday, January 2, 2002

Yen plummets in 2001 amid turmoil

By Geraldine Ryerson-Cruz
Bloomberg News Service

NEW YORK — The yen had its biggest annual decline against the dollar since 1979 on expectations Japanese officials will let the currency slide to help the economy recover from recession.

Japan's currency declined four straight weeks as officials signaled it was too strong given the weakness of the economy.

The drop accelerated Thursday to a three-year low against the dollar and a two-year low against the euro, after the unemployment rate climbed to the highest level in half a century and bankruptcies reached a 17-year high.

"A major driver behind the weaker yen has been the so-called benign neglect by Japanese policy-makers," who have suggested they will allow the currency to fall to help boost exports, said Rebecca Patterson, a currency strategist at J.P. Morgan Chase & Co. "As long as those sorts of comments continue to emerge, investors are comfortable" selling yen, she said.

The Japanese currency fell to 131.67 yen per dollar from 131.11 late Friday in New York. It dropped 13.1 percent against the dollar this year, its largest slide since a 19 percent decline in 1979. The yen sank to its weakest since Sept. 9, 1999 at 117.40 per euro from 116.03 Friday, extending its decline for the year to 8.1 percent.

Trading was less than usual because of today's New Year's holiday. Japan's financial markets are closed until Friday.

Analysts said reports in coming weeks on manufacturing, retail business and employment for January may signal Japan's third recession in a decade isn't about to end.

"There aren't any bright spots at all in the Japanese economy," said Murray Gunn, foreign-exchange investment director at Standard Life Investments in Edinburgh, where he helps manage 78 billion pounds ($114 billion). He expects the yen to fall to 140 per dollar next year. "The authorities are saying we are not going to stand in your way if you want to sell the yen."

Haruhiko Kuroda, Japan's currency chief, last week reiterated his view the yen is falling from too-strong levels reached earlier in the year, because of the state of Japan's economy.

The central bank stepped into the market on seven days in September to sell yen and weaken it from a high of 115.83 per dollar. Officials have since allowed it to sink further to help make Japan's exports more competitive abroad and boost the value of overseas profits for Japanese companies, analysts said.

The government said last week that Japan's unemployment rate rose to 5.5 percent, as companies cut workers amid a 14-month-old recession. Separate figures showed production fell 1.8 percent in November to a 14-year low, reducing the prospect that an economic recovery will be led by the domestic sector, analysts said.