By Yasuhiko Seki Nov. 27 (Bloomberg) -- The yen strengthened to a 14-year high against the dollar, climbing past 85 to the greenback and prompting speculation Japan will intervene in markets to preserve the nation’s export-led economic recovery. Japan’s currency pared most of its advance after Finance Minister Hirohisa Fujii told reporters in Tokyo he will contact officials in the U.S. and Europe about exchange rates if needed. The yen and dollar rose against all their main counterparts after a Dubai proposal to delay debt payments sparked investor flight from riskier assets. “The cross currencies look like they nearly collapsed today as the Dubai issue revived fears over credit woes,” said Daisaku Ueno, chief currency analyst at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company. “The yen was bought against everything as people rushed to unwind positions on higher-yielding currencies.” The yen climbed as high as 84.83 per dollar, the strongest since July 1995, before trading at 86.45 as of 1:50 p.m. in Tokyo from 86.59 yesterday in New York. The currency advanced to 129.19 per euro from 130.03, after reaching 126.91, the highest since April 29. The euro fell to $1.4942 from $1.5019. New Zealand’s currency slid as much as 3.3 percent to 59.91 yen, the lowest since July 16, and has dropped 5 percent this month. The so-called kiwi dollar weakened to 71.22 U.S. cents from 71.54 cents yesterday, trading near an eight-week low. The greenback headed for the worst month since December against the yen before a report next week that economists said will show U.S. business activity declined, supporting the case for the Federal Reserve to keep borrowing costs near zero. Factory Index The Institute for Supply Management-Chicago Inc.’s business barometer declined to 53 in November from 54.2 the previous month, according to a Bloomberg News survey of economists before the Institute releases the survey on Nov. 30. Adding to signs that the recovery is losing traction, the Institute for Supply Management’s factory index fell to 54.8 in November from 55.7 in October, according to a separate Bloomberg News survey before the data is released next week. Futures contracts on the Chicago Board of Trade showed yesterday a 30 percent chance the Fed will raise interest rates by June, down from 67 percent odds a month ago. Three-month yen London interbank offered rates, or Libor, stood at 0.296 percent yesterday, higher than the 0.254 percent rate for dollar loans, according to British Bankers’ Association data. Dollar loans became cheaper than those in yen in August. ‘Benign Neglect’ “Unless the U.S. drops its benign-neglect policy on the weakness of the dollar and until its interest-rate outlook improves, the yen will remain hostage to appreciation risk,” said Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd. Fed officials said in minutes of their Nov. 3-4 meeting released on Nov. 24 that the dollar’s decline has been “orderly” and that they would watch for any signs that the depreciation is pushing up people’s expectations for inflation. Shizuka Kamei, Japan’s financial services minister, today urged for an international response to halt the yen’s rise, while Trade Minister Masayuki Naoshima said the stronger currency “is threatening the competitiveness of Japanese exporters.” Fujio Mitarai, head of Japan’s biggest business lobby and chief executive officer of Canon Inc., said Japan needs “urgent steps to counter this critical situation.” hamper the economic recovery. Finance Minister Fujii said today he would “establish contact if necessary” with U.S. and European officials in regard to possible intervention. ‘Stronger Warning’ “The market showed some respect to a stronger warning from the government today and bought back the dollar,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “The impact of verbal intervention will not last so long unless the government takes actual action.” Japan hasn’t sold its currency since March 16, 2004, when it traded around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the rate fell as low as 147.66. “At a time when the recovery is expected to be gradual, an appreciating yen is of extreme concern,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “I think the government will take some kind of action.” Stock Slide Japan’s Nikkei 225 Stock Average sank 1.8 percent today, on course for an 8 percent slide this month. The MSCI Asia Pacific of regional shares lost 2.2 percent. “The stability of the yen is indispensable to reinvigorating the stock market,” said Haruki Takahashi, general manager of equity dealing at Mitsubishi UFJ Securities Co. “Stock investors are now crying for a help. If the current situation continues, Kabuto-cho will become a ghost town.” Kabuto-cho is the region in the capital where the Tokyo Stock Exchange is located. 　The Australian and New Zealand dollars weakened after Dubai’s attempt to reschedule debt sparked a global slump in equities. Dubai World, with $59 billion of liabilities, has sought a “standstill” agreement from creditors. “Coming into November month-end and then year-end, we are going to see more pressure on equity markets, and the European banking sector is particularly vulnerable,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “Because the Aussie and kiwi have been the outperforming currencies on the way up, we’d expect them to suffer in this kind of mood.” To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net.

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