Roundup: Japan's currency sinks further as U.S. dollar rises to 12-year high

The U.S. dollar rose above the 125- yen-level on Tuesday, marking its highest level versus the yen since late 2002, with the greenback buoyed by a raft of economic data supporting the U.S. Federal Reserve's case to raise its key interest rate later this year.

The U.S. dollar was logged at noon as trading at 124.77-81 yen, rising from 124.75-85 yen in New York and well up on the 124.16-17- mark yen booked as of the close of trade here in Tokyo on Friday.

At the end of May, sudden currency fluctuations rattled both the central bank and government officials, both parties of which stated that price stability in currency markets is efficacious to the nation's economy rather than an overly weak yen, despite Japan being largely an export-driven economy, with its balance sheet just recently returning to the black, owing to reduced costs for crude oil.

On May 27 the yen plummeted to a near eight-year low versus the U.S. dollar and on May 28 concerned officials were concerned further by the yen hitting a 13-year low versus its U.S. counterpart.

The latest rise in the U.S. dollar was supported by data showing robust manufacturing output in May and increased spending on construction projects in April, both of which signal a strengthening economy and sent U.S. Treasury yields higher.

Bank of Japan (BOJ) Governor Haruhiko Kuroda reiterated on Tuesday the central bank's stance that it was vital for currency rates to reflect economic fundamentals. He told local reporters following a meeting with Prime Minister Shinzo Abe that the BOJ's policy has and continues to be targeted at creating price stability and not to unnecessarily weaken the yen.

"Central banks are pursuing policy for price stability," the BOJ chief said Tuesday, refuting suggestions the central bank's massive stimulus program had been tailored specifically to weaken the Japanese currency.

The central bank's Policy Board has consistently voted to maintain its key policy of increasing the base money at an annual pace of about 80 trillion yen (642 billion U.S. dollars) through massive asset purchases, with no further easing being unrolled, based on the bank's view that, "Japan's economy has continued to recover moderately." Kuroda has said the current policy will be kept in place "at least for the time being."

"It's important for currencies to reflect economic fundamentals and desirable that currencies move in a stable manner," Kuroda said, declining to comment on the current currency levels or the pace of currency moves on Tuesday.

Along with Kuroda, Finance Minister Taro Aso, who has also recently returned from a Group of Seven finance leaders' meeting in Dresden, Germany, at which it was decided, largely in line with the Group of 20 nations' stance, that sudden moves in foreign exchange markets were undesirable.

Japan's Economics Minister Akira Amari, while stating that the recent foreign exchange movements reflected the dollar's gains more than it did the yen's losses, has also described the current situation as "undesirable."

Leading economists here have asserted that the closer the Fed get to hiking its rate based on positive economic data, and the likelihood the BOJ will stand pat on its monetary policy, thus creating an currency interest gap between the two nations making the yen less profitable, the yen could retreat further against its U.S. counterpart henceforth.

The ongoing decline of the yen will likely be perpetuated by traders repositioning themselves to deal with the Fed's interest rate hike, now believed by experts on the matter to be implemented later this year, with upcoming macroeconomic data due out from the world's largest economy soon, including a highly-anticipated jobs report on Friday, likely to have a major bearing on further yen- dollar moves.

The yen has fallen 3.4 percent last month, it's biggest drop since November last year when it fell 5.3 percent that month after the BOJ suddenly unveiled an expanded stimulus program in October and Japan's currency has dropped more than 30 percent since Abe came into power in 2012. Endi