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Dollar's weakness may be too much, too soon for U.S. trading partners

September 28, 2009 | 12:14 pm

Looks like there’s finally some foreign pushback against the weak dollar -- although maybe not enough to stop the trend.

Japanese Finance Minister Hirohisa Fujii, who recently has been supportive of the yen’s latest surge against the greenback, sounded less sure in comments today -- after the dollar slumped below 90 yen to its weakest level since February.

The dollar fell to as low as 88.24 yen, down from 89.90 on Friday and 97 in mid-August. The yen's strength hammered shares of Japanese exporters, pushing the Nikkei-225 stock index down 256.46 points, or 2.5%, to 10,009.52, the lowest since July 24.

From Reuters:

Fujii, who has said recently that a stronger yen could benefit the economy, said recent moves in currency markets had been a bit one-sided and that it was wrong to see his comments as a license to push the yen higher.

Fujii

"Some people in the markets are distorting my comments. At the root [of the yen's rise against the dollar] is a U.S. policy. But markets will correct themselves soon," Fujii told reporters.

The remarks came just hours after Fujii told Dow Jones newswires that current moves were "not abnormal" and added that "foreign exchange dumping" to defend Japanese exporters would be wrong.

Fujii further sought to contain the market fallout from his earlier comments, telling a seminar on Monday that he had never said he would leave a yen rise "as it is."

In Europe, meanwhile, European Central Bank President Jean-Claude Trichet said a strong dollar was "extremely important" for the global economy.

The euro fell to $1.459 today from $1.467 on Friday. It reached a one-year high of $1.479 last Tuesday.

The dollar has mostly been losing ground against other currencies since April, in part as rebounding financial markets worldwide have encouraged investors to abandon the buck as a haven and invest elsewhere.

World leaders at the Group of 20 meeting last week agreed on a strategy to reduce the world’s reliance on U.S. consumers. That would imply stronger foreign currencies, which would give foreign consumers more purchasing power (and mean less purchasing power for Americans).

But dollar weakness is bad for foreign exporters, and neither the U.S. nor its trading partners want to see the greenback in a free fall that would shake global confidence.

The dollar’s slump has been a boon for U.S. investors in foreign stocks and bonds this year because it means securities denominated in foreign currencies are automatically worth more when translated into dollars. The German stock market, for example, is up 19.3% in euros year to date, but its gain in dollars is 25%. Australia’s market is up 26% in Australian dollars and 55% in U.S. dollars.

-- Tom Petruno

Photo: Japanese Finance Minister Hirohisa Fujii. Credit: Haruyoshi Yamaguchi / Bloomberg News

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