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Yen Weakens After Minister Says Slide Isn’t Over; Euro Advances

Jan. 24 (Bloomberg) -- The yen fell for the first time in four days against the dollar after Deputy Economy Minister Yasutoshi Nishimura said its decline isn’t over and a level of 100 versus the U.S. currency wouldn’t be a concern.

The yen dropped at least 0.5 percent versus all of its 16 major counterparts after a Chinese report showed manufacturing expanded at the fastest rate in two years, reducing demand for Japan’s currency as a refuge. Asian currencies weakened against the dollar as North Korea threatened to test nuclear weapons. The euro strengthened after a regional report showed the contraction in manufacturing and services slowed this month.

“The most important thing for currency markets is the new Japanese administration and the seeming forcefulness to get the yen weaker as soon as possible,” said Adam Myers, European head of foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London. “It’s great that China’s economy is rebounding, no question.”

The yen tumbled 1.1 percent to 89.58 per dollar at 7:33 a.m. in New York after strengthening 1.7 percent during the previous three days. It slid to 90.25 on Jan. 21, the weakest level since June 2010. Japan’s currency declined 1.2 percent to 119.40 per euro. The euro gained 0.1 percent to $1.3329.

The yen may drop to 100 in the next six months “depending on how aggressive the official rhetoric is,” Myers said. The probability of the yen weakening to 100 by year-end was 25 percent today, according to options data compiled by Bloomberg.

‘Isn’t Over’

The yen at 100 per dollar would be acceptable, Nishimura said in an interview in Tokyo, suggesting global criticism may fail to convince Prime Minister Shinzo Abe to temper his push to weaken the currency.

“The current level around 90 can be said to be a correction of the strong yen, but it isn’t over yet,” Nishimura said. A level of 110 to 120 would raise import costs, he said, suggesting the government won’t back a currency free-fall.

Japan’s currency fell in early Asian trading after HSBC Holdings Plc and Markit Economics said their preliminary reading of China’s Purchasing Managers’ Index increased to 51.9 in January from 51.5 the previous month. The data suggest China’s expansion at the start of 2013 will equal or exceed its 7.9 percent pace in the fourth quarter.

“Yen weakness kicked in squarely as a function of the Chinese data,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “The Chinese data surprised to the upside for many people. The global backdrop is showing an improving trend that’s not factored into the market yet.”

Yen’s Slide

The yen has slumped 18 percent in the past six months, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar dropped 4.7 percent and the euro advanced 6.5 percent.

Asian currencies fell as North Korea threatened to conduct a nuclear weapons test “targeted” at the U.S. after the U.S. pushed through new United Nations sanctions against the state for its rocket launch last month.

Investors are “selling Asian assets amid rising geopolitical risks in North Korea,” said Yuji Saito, director of foreign-exchange at Credit Agricole SA in Tokyo.

South Korea’s won declined 0.3 percent to 1,068.85 per dollar and the Taiwan dollar dropped 0.2 percent to 29.138.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, fell 0.1 percent to 118.48.

The euro strengthened against all except two of its 16 major counterparts after Markit Economics released its survey of purchasing managers in manufacturing and services.

A composite index based on the survey climbed to 48.2 this month from 47.2 in December, the data showed. A reading below 50 indicates contraction.

The 17-nation currency rose for the first time in five days against the Swiss franc, gaining 0.1 percent to 1.2390 francs.

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