The euro may lose 20 percent or more against the dollar and fall below ¥100 as concern over Europe’s debt crisis mounts, according to Eisuke Sakakibara, the former Finance Ministry official known as “Mr. Yen.”
European finance ministers have agreed on a rescue fund backed by 440 billion euro ($524 billion) in an effort to halt the spread of the credit woes afflicting Greece. That accord followed the announcement on May 2 of aid for Greece.
“They’ve infused a substantial amount of money, but whether Greece will be able to comply with the conditions is still in doubt,” Sakakibara, a professor at Aoyama Gakuin University in Tokyo, said in an interview Tuesday. “The market doesn’t believe it.”
The euro has declined nearly 17 percent against the dollar this year after the sovereign debt crisis that originated in Greece prompted concerns about contagion effects in nations including Portugal, Spain and Hungary.
The common currency rose in Asia trading Tuesday after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy was recovering at a “moderate” pace, helping to revive risk sentiment.
Sakakibara, 69, said the euro will likely resume the move lower because investors aren’t convinced that Europe’s debt crisis has been resolved. More than half of the investors and analysts surveyed by Bloomberg in a quarterly poll taken last week said the European Union offers the worst investment opportunities.
“The euro will probably head toward parity, and the euro-yen rate will hit 100 within the next couple of months,” Sakakibara said. How far the euro will tumble below a 1-to-1 level against the dollar is the question, he said.
The euro debuted at $1.17 in January 1999, troughed at 83 cents in October 2000 and peaked at $1.60 in July 2008. Economists at BNP Paribas SA and Capital Economics Ltd. are among those predicting it will return to parity with the dollar.
Sakakibara said European officials will likely accept a further decline in the euro of as much as 20 percent because a cheaper currency would support exporters.
“When it breaks parity, that’s a different story,” he said, adding that Japan won’t attempt to prevent its currency from rising versus the euro. “There’s no way we could intervene.”
Sakakibara became known as Mr. Yen during his 1997-1999 Finance Ministry stint for his efforts to influence the yen rate via verbal and actual intervention in the currency markets.
While former Federal Reserve Chairman Paul Volcker said last month that Europe’s widening debt crisis may cause the 16-nation currency to dissolve, European Central Bank President Jean-Claude Trichet said May 31 the euro is keeping its value in a “remarkable fashion.”
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