Yen Tumbles Against Dollar; Nikkei Hits 15-Year Low

The yen sank to a six-week low against the dollar Friday as tumbling Japanese stocks fueled concern that the world’s No. 2 economy may be headed back into recession.

The Nikkei 225-stock average fell to its lowest level in more than 15 years, and Japanese bonds declined. Japan’s jobless rate held at a record high in January, while a drop in Tokyo consumer prices suggested deflation may be worsening.

“There’s a ‘sell Japan’ mentality that has crept in,” said Andrew Delano, a currency analyst at IDEAglobal.com. “It looks like the yen is going to have to endure more pressure going forward.”

The Japanese currency fell to 119.16 per dollar, its weakest level since sinking to an 18-month low of 119.90 yen on Jan. 18, and down from 117.40 the day before.

Foreign investors were net sellers of Japanese stocks for the first time in nine weeks last week, according to the Tokyo Stock Exchange.

On Friday, the benchmark 225-issue Nikkei stock average shed 419.86 points, or 3.3%, to 12,261.80. On Thursday, the average closed down 201.88, or 1.5%.

The Nikkei is trading at its lowest levels since November 1985, when the average finished at 12,642.89. The broader Topix index fell 2.2% to 1,199.84 Friday, its lowest close in two years.

The drop in the yen and Nikkei “is a no-confidence vote by the market” in Japanese Prime Minister Yoshiro Mori and Bank of Japan Governor Masaru Hayami, said Folker Hellmeyer, chief currency analyst at Landesbank Hessen-Thueringen in Frankfurt. Hellmeyer sees the yen falling to 125 per dollar in the next three months.

Friday’s 1.4% drop in the yen, the biggest single-day decline in two months, follows Wednesday’s surprise decision by the Bank of Japan to lower its benchmark interest rate to 0.15%, just six months after raising it to 0.25% from near zero. The move highlighted concern Japan’s economic outlook is worsening, traders said.

Japan’s economy shrank 0.6% in last year’s third quarter, after two quarters of growth, raising speculation the country is on the verge of falling back into recession. Japan reports fourth-quarter growth this month. Forecasts are for a 0.3% expansion from the third quarter, according to a Bloomberg News survey.

The yen also declined on concern the plunge in stocks might push some banks into insolvency. Banks tend to have large equity holdings and are burdened with an estimated 33 trillion yen ($280 billion) of bad loans, according to the Financial Services Agency.