By Oliver Biggadike and Bo Nielsen Nov. 30 (Bloomberg) -- Options traders are adding to bets the yen will rise against the dollar even after the Ministry of Finance pledged to “do what is necessary” to stem gains following a surge to a 14-year high. Contracts granting the right to buy the yen versus the dollar rose last week to a 2.1 percentage-point premium relative to options for selling Japan’s currency, according to Bloomberg data. The odds of the yen strengthening past 84.83 per dollar, the highest since July 1995, to 84.5 by the end of March rose to 80 percent, options data compiled by Bloomberg show. Finance Minister Hirohisa Fujii said on Nov. 27 in Tokyo his nation will “do what is necessary” and he may contact U.S. and European officials to act, raising speculation that officials will intervene in foreign-exchange markets for the first time since 2004. The yen’s 14 percent advance against the dollar since April 6 threatens profits at exporters from Sony Corp. to Toyota Motor Corp. “Dollar-yen at the moment is very much a momentum play,” said Henrik Gullberg, a foreign-exchange strategist at Deutsche Bank AG in London. “Right now Japan needs demand from abroad in terms of stimulus for the economy. The timing isn’t very good for a significant yen appreciation when the real economy is in the current fragile state.” The yen climbed to 84.83 on Nov. 27, before closing at 86.53 in New York. The currency has gained 3.9 percent this month, and has strengthened from 100.99 in April. The yen traded at 86.71 per dollar as of 12:12 p.m. in Tokyo after the Mainichi newspaper reported that Fujii said the government won’t intervene to weaken the yen. He said in Tokyo today that people shouldn’t be swayed by daily moves in the currency and that fluctuations need to be examined as a trend. Threat to Credibility Japan, which depends on exports for about 12 percent of its economy, compared with 6 percent in the U.S., will probably have to sell its currency if warnings from government officials fail to deter traders from pushing the yen higher, Barclays Plc analysts said in a note to clients. Perceptions that officials’ comments are an “empty threat” would strengthen Japan’s currency to 85 against the dollar, Masafumi Yamamoto and Yuki Sakasai at Barclays in Tokyo wrote in a Nov. 27 report. Japan hasn’t intervened by purchasing or selling the yen to influence exchange rates since March 16, 2004, when it traded around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($171 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. ‘Intervention Game’ “The intervention game is coming alive,” said Jens Nordvig, a managing director of currency research in New York at Nomura International Plc, a unit of Japan’s biggest securities firm. “Between 80 and 85, intervention becomes much, much more likely. Clearly this is a problematic level and a lot of exporters are feeling a lot of pain around here.” The yen may trade as high as 83 per dollar at the beginning of next year, Nordvig predicted. The yen’s gains may cause exporters to miss their earnings forecasts as dollar-denominated profits depreciate. Toyota, Sony and Canon Inc., which generate more than 70 percent of their revenue outside Japan, projected average values of 90 to 95 yen per dollar for this fiscal year when estimating income. Toyota Executive Vice President Takeshi Uchiyamada said at the Tokyo Motor Show on Oct. 21 that the car company is considering increasing production outside Japan as the yen strengthens. Falling Shares Japan’s Topix benchmark of more than 1,600 shares fell 5.6 percent this year, the only decline among 22 Asian indexes tracked by Bloomberg. The Standard & Poor’s 500 climbed 21 percent and Germany’s DAX advanced 18.2 percent. The Topix posted its fifth weekly decline in the five days ended Nov. 27, the longest stretch of losses since July 2008. “I’m sure there will be conversation among officials,” said Richard Benson, who helps oversee $11 billion of currency funds at Millennium Global Asset Management in London. “There will be some form of verbal or physical intervention to try to slow the move down because abrupt underperformance in Japanese asset markets is not acceptable.” Officials at the Federal Reserve and Japanese Ministry of Finance say they distinguish between orderly and disorderly swings in the value of their currencies. Fujii has said at least three times since Nov. 26 that the government may take “action” on any “abnormal” currency moves, a wording officials have used previously to try to curb the yen’s advance. The Fed described the dollar’s decline as “orderly” in the minutes of its Nov. 3-4 meeting released on Nov. 24. Yen volatility surged last week, increasing 3.1 percentage points, the most in 10 months, to 14.2 percent, one-month dollar-yen options prices show. “The last 48 hours have been anything but orderly,” Jeremy Stretch, a senior currency strategist at Rabobank International, said in a Nov. 27 interview from London. “The best thing the Bank of Japan can hope for is that risk appetite recovers.” To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

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