Sept. 29 (Bloomberg) -- The yen weakened against the dollar as Japan’s Finance Minister said the government may take action in markets after the currency’s gain to an eight-month high imperiled earnings for export-dependent companies. Japan’s currency declined against all of its 16 major counterparts as Asian shares extended a global rally, boosting demand for higher-yielding currencies. The dollar traded near a two-week high against the euro after European Central Bank President Jean-Claude Trichet and an adviser to Japan’s finance minister reaffirmed support for the greenback. “Japan’s policy makers can’t just let the yen rise, which will hurt companies’ profits and reduce jobs,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. “Economic fundamentals are improving, boosting demand for risk taking.” The yen declined to 89.98 per dollar as of 1:07 p.m. in Tokyo from 89.63 in New York yesterday, when it touched 88.24, the strongest level since Jan. 23. Japan’s currency dropped to 131.64 per euro from 131.06 in New York yesterday. The dollar was at $1.4625 per euro from $1.4622. Yesterday it touched $1.4565 per euro, the highest level since Sept. 15. “If the currency market moves abnormally, we may take necessary steps in the national interest,” Japanese Finance Minister Hirohisa Fujii said at a news conference in Tokyo today. He denied saying he tolerates a stronger yen. Since taking the post two weeks ago, Fujii has he doesn’t support a “weak yen” and he opposes governments stepping into currency markets “in principle.” Central banks intervene in foreign-exchange markets by selling and buying currencies. Exporters vs. Consumers The yen has gained about 16 percent in the past year, making Japanese products shipped abroad more expensive and eroding the value of repatriated profits. Fujii’s Democratic Party of Japan, which won power for the first time last month, has said a stronger currency may benefit households by making imported goods cheaper. Japanese companies said they can remain profitable as long as the yen trades at 97.33 per dollar or weaker, according to a Cabinet survey released on April 22. Exports account for 12 percent of Japan’s economy, compared with 6 percent in the U.S. “The yen’s recent gains, fueled by market interpretation of Fujii’s comments, are losing momentum,” said Masato Mori, senior manager of the business and marketing department at NTT SmartTrade Inc. a unit of Nippon Telegraph & Telephone Corp. Stocks Rally Japan’s currency weakened as Asian shares followed gains by U.S. equities. Japan’s Nikkei 225 Stock Average rose 0.7 percent, rebounding from yesterday’s 2.5 percent tumble, after the U.S.’s Standard & Poor’s 500 Index added 1.8 percent. MSCI’s Asian Pacific Index increased 0.9 percent. “Risk appetite has improved because of the big bounce in U.S. equities,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “Speculators who have been betting on the yen’s strength should probably start reconsidering whether they should still be long on the yen.” The European Commission in Brussels will report today that economic confidence in the euro zone gained to 82.7 this month from 80.6 in August, according to the median estimate of economists in a Bloomberg News survey. That would be the highest since September 2008. Trichet told lawmakers in Brussels it was too early for the ECB to unwind emergency stimulus policies and the “solidity of the dollar is very important” for the world economy. The euro reached a one-year high of $1.4844 on Sept. 23, making European exports more expensive. No Alternative Japan’s government should support the U.S. dollar’s status as the world’s reserve currency, said Toyoo Gyohten, tapped to become an adviser to Finance Minister Fujii. “There’s no better alternative to the dollar,” Gyohten, 78, said in an interview yesterday in Tokyo. “Making it as stable as possible would be the best policy option at the moment.” Gyohten’s comments indicate the DPJ may follow policies by the former government of supporting the dollar’s hegemony and buying U.S. government debt. Demographics may also act to push down the yen, as Japan’s aging society and weak growth prospects gradually erode the currency’s buying power, said former Bank of Japan Executive Director Eiji Hirano. Population Decline “It’s favorable to have a stable and strong currency in the long term, but it’s more likely that the yen will weaken,” Hirano said in an interview in Tokyo on Sept. 25. “If Japan fails to counter the problem of a shrinking and aging population, the economy may weaken and the currency may become cheaper.” Adding to signs Japan’s recovery is stalling, consumer prices fell the most in at least 38 years in August, according to data released by the statistics bureau in Tokyo today. Prices excluding fresh food slid 2.4 percent from a year earlier, topping July’s 2.2 percent decline. The drop matched economists’ estimates. The U.S. Federal Reserve may keep its benchmark interest rate at a record low for “too long,” increasing pressure on the dollar to weaken, said Steve Hanke, a professor at Johns Hopkins University. Fed Chairman Ben S. Bernanke and other policy makers may hold off increasing rates until after the mid-term Congressional elections in November 2010, as inflation stays within the central bank’s target range, Hanke said in an interview in Kuala Lumpur late yesterday. “It’s conceivable they’ll wait too long and they’ll probably keep as loose as they can before the elections,” Hanke said. “2011 would really be way too late.” To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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