By Lukanyo Mnyanda Dec. 2 (Bloomberg) -- The yen fell after Japanese Prime Minister Yukio Hatoyama was cited by the Nikkei newspaper as saying the currency’s strength can’t be left as it is, fueling speculation policy makers will act to stem its gains. Japan’s currency headed for its first back-to-back losses in two weeks against the dollar following the Nikkei report. Chief Cabinet Secretary Hirofumi Hirano said later Hatoyama wasn’t suggesting the government is ready to intervene. The dollar traded near a 16-month low versus the euro and fell against higher-yielding currencies before a report economists say will show U.S. employers cut fewer jobs last month, sapping demand for the currency as a refuge. Japanese officials “are very much concerned about yen strength, and the market is quite aware that the Bank of Japan will likely intervene if the yen appreciates too much,” said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany’s second-largest lender. “Risk appetite is also driving the market at the moment and the dollar will also be under pressure due to the low financing costs.” The yen dropped 0.7 percent to 87.27 per dollar as of 9:51 a.m. in London. It also declined 0.7 percent against the euro, to 131.77. The dollar fell 0.1 percent to $1.5088 per euro. It depreciated to $1.5144 on Nov. 25, the weakest level since August 2008. 14-Year High Rapid fluctuations in the currency market are undesirable and the government is closely monitoring the situation, Hirano told reporters in Tokyo following Hatoyama’s comments. Volatility may hamper growth and the central bank is open to taking steps to support the economy, board member Miyako Suda said in a speech today in Kofu, west of Tokyo. The yen has advanced 3.8 percent versus the dollar this year and traded at a 14-year high of 84.83 against the U.S. currency on Nov. 27. The yen fell against all its 16 most-traded peers tracked by Bloomberg, including the Australian and New Zealand dollars. Australia’s currency, the Aussie, also rose as gold, the nation’s third most-valuable raw material export, advanced to a record for a second day, trading at $1,215.85 an ounce. The Aussie rose 1.2 percent to 81.13 yen and was up 0.4 percent against the dollar at 92.85 cents. The New Zealand dollar also gained 1.2 percent to 63.67 yen and strengthened 0.4 percent to 72.86 cents. Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Stocks Rise The MSCI World Index headed for a third days of gains, advancing as much as 0.2 percent today. It has risen 2.5 percent in the past three days. U.S. stock-index futures were little changed. The Dow Jones Industrial Average rose to a 14-month high yesterday. U.S. companies cut 150,000 jobs in November, down from 203,000 in October, according to the median estimate of economists in a Bloomberg News survey before today’s report from ADP Employer Services. That would be the smallest reduction since July 2008. “The global recovery is in motion,” said Adam Carr, senior economist at ICAP Australia Ltd. in Sydney. “A stronger employment report, of course, will lead to an increase in risk appetite, and we will probably see that weigh heavily on the U.S. dollar.” Euro’s Gains The euro rose against the yen as European finance leaders played down potential risks to their banks from Dubai’s debt woes. Government-related Dubai World has begun talks with banks to restructure $26 billion of debt. The risk of losses for “European banks seems to be so far, from what we can assess, at a reasonable level,” Finance Minister Anders Borg of Sweden, which holds the rotating European Union presidency, said yesterday as he arrived for a meeting of finance chiefs in Brussels. Japan should ask the U.S. and Europe to take coordinated action to weaken the yen, Financial Services Minister Shizuka Kamei said. “We need international coordination,” Kamei, 73, said in an interview in Tokyo today. Kamei, whose People’s New Party is a coalition partner to the Democratic Party of Japan, said he had urged Finance Minister Hirohisa Fujii to seek international cooperation to halt the currency’s rise. The country hasn’t sold its currency since March 16, 2004, when the yen was around 109 per dollar. The Bank of Japan sold 14.8 trillion yen in the first three months of 2004. The central bank said yesterday it will provide three-month loans to commercial banks at an interest rate of 0.1 percent as it seeks to address falling prices and a strengthening currency. The “money market operation was disappointing and will not be sufficient to change the dollar-yen trade,” analysts led by Hans-Guenter Redeker at BNP Paribas SA in London, wrote in a client note today. “The BOJ should convert to a more aggressive style of quantitative easing.” To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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