By Matthew Brown and Yoshiaki Nohara Sept. 28 (Bloomberg) -- The yen touched the highest level in eight months against the dollar on speculation Japan’s new government will allow its currency to appreciate. The dollar fell below 89 yen for the first time since February after Finance Minister Hirohisa Fujii said the Japanese currency’s moves aren’t excessive, and the greenback pared losses after Fujii said people misinterpreted his comments. “While the Democratic Party of Japan has made it clear that it is against the idea of currency intervention, it seems they’ve been surprised by how seriously the market has taken their comments and are softening their rhetoric,” said Simon Derrick, chief foreign-exchange strategist at BNY Mellon Corp. in London. The yen traded at 89.65 per dollar at 8:33 a.m. in New York, from 89.64 on Sept. 25. It earlier touched 88.24, the strongest level since Jan. 23. The yen appreciated 0.3 percent to 131.31 per euro, from 131.70, after reaching 129.83, the strongest since July 14. The dollar appreciated 0.2 percent to $1.4656 per euro, from $1.4689. Fujii said on Sept. 16 he doesn’t support a “weak yen,” fueling speculation the government won’t act to curb the currency’s 19 percent appreciation versus the dollar in the past year. Central banks intervene in foreign-exchange markets by selling and buying currencies. Fujii’s Stance Speaking today at a forum co-hosted by Bloomberg, Fujii said he “never said I will leave the yen to strengthen” and that he didn’t necessarily accept gains in the currency. Fujii’s Democratic Party of Japan swept to power in elections on a platform of boosting public consumption. Group of 20 leaders, meeting in Pittsburgh last week, adopted a framework for more durable economic growth as they sought to prevent a replay of the worst crisis since the Great Depression. They acknowledged the recovery remains dependent on emergency government measures and pledged to avoid pulling back until the time is right. The yen will be among the best-performing currencies in the fourth quarter as it’s replaced by the dollar as the funding asset of choice and strengthens amid rising stock markets, JPMorgan Chase & Co. said. Japan’s currency may appreciate to 85 per dollar by year- end, John Normand, global head of foreign-exchange strategy in London at JPMorgan, said in an interview. JPMorgan on Yen “The yen is no longer the best funding currency globally,” Normand said. “The yen no longer weakens reflexively when growth accelerates and equities rally.” The London interbank offered rate, or Libor, for three- month yen loans stayed at almost a 16-year high relative to equivalent-maturity dollar Libor, with the spread at 0.06 percentage point. The Japanese currency’s current level of about 90 per dollar is “painful,” Toyota Motor Corp. Executive Vice President Yukitoshi Funo said on Sept. 25. Japan’s currency also gained today on expectation exporters are taking advantage of an April 1 rule change that waives taxes on repatriated profits. Under previous laws, companies had to pay a combined 40 percent tax on overseas earnings. The first half of Japan’s fiscal year ends Sept. 30. “Japanese firms are continuing to bring home profits,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. The yen climbed to 87.13 on Jan. 21, the strongest level since July 1995. The median forecast among securities companies is for the currency to trade at 96 per dollar at year-end and 98 at the end of the first quarter of 2010. Boost for Krone The Norwegian krone, Swedish krona and New Zealand dollar gained about 10 percent against the U.S. dollar since June 30, the best among the 16 most-traded currencies, following their worst slumps since at least 1993. Rising oil prices helped Norway. New Zealand benefited from accelerating growth in Australia, its biggest market. The international bailout of Latvia staved off defaults on Swedish bank loans. The krone dropped 0.3 percent to 5.8212 per dollar today, while the krona slid 0.5 percent to 6.9793. The New Zealand dollar fell 0.9 percent to 71.27 U.S. cents. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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