Dollar tumbles 15 percent during year

By Taizo Hirose
Bloomberg News Service

The dollar headed for its biggest annual fall against the euro and worst year in five against the yen on higher interest rates in Europe and signals that the Treasury and European Central Bank aren't concerned about the decline.

The Fed, buoyed by the first drop in consumer prices in almost 21 years, has said it won't rush to raise its target rate from a four-decade low of 1 percent.

At the ECB, where rates are twice that, President Jean-Claude Trichet said he favors a strong euro. U.S. Treasury Secretary John Snow this month described the dollar's slide as "orderly."

Against a basket of major currencies measured by the Dollar Index, the U.S. currency shed 15 percent this year, the biggest loss since 1987. The Australian dollar, which is included in the index, climbed the most, helped by two interest rate increases.

"It's pretty easy to project the dollar is going to continue to slide," Andrew Delano, a currency analyst for IDEAGlobal, a New York economic research company, told Bloomberg News in a televised interview. "This adjustment is not over."

The U.S. currency has dropped almost 17 percent this year against the euro, trading at $1.2574 at 12:58 p.m. in Tokyo from $1.2550 late yesterday in New York. It fell as low as $1.2577, a record since the 1999 debut of the 12- nation common currency. It was at 106.91 yen from 106.98.

The yen strengthened in 2003 as Japan's economy wrapped up a second year of expansion and international investors pushed the Nikkei 225 Stock Average up 24 percent.

Against the dollar, the yen has climbed 11 percent this year even as Japan spent a record of more than 20 trillion yen ($187 billion) in an effort to stem the currency's appreciation. Overseas investors were net buyers of Japanese shares for all but four of the past 36 weeks, pushing the Nikkei higher for the first year in four.

The dollar has declined less against the yen than the euro as the Bank of Japan, at the behest of the Finance Ministry, sold its currency every month this year except for two. Earlier this month, the yen gained as high as 106.75 against the dollar.

"The only thing standing between the yen and 100 is the BOJ and MOF," said Greg McKenna, a currency strategist in Sydney at National Australia Bank Ltd., Asia's biggest bank by assets outside of Japan. "Japanese officials will fight a guerrilla campaign of hit and run" yen selling.

The yen would be at 98, were it not for Japan's sales, he said.

For Hawai'i, a stronger yen is good news because it means that the yen goes further when tourists book hotel rooms or air fares or buy tickets to visitor attractions, encouraging more travel and spending.