Bloomberg: Dollar May Gain; Olson Not Worried Fed Will Raise Interest Rate Too Much

Dec. 6 (Bloomberg) — The dollar may gain for a second day
versus the yen in Asia after Federal Reserve Governor Mark Olson
said he isn’t concerned interest rates will go too high because
the Fed can respond quickly to changes in the economy.

The U.S. currency is poised

for the biggest annual gain
against the yen since 1979 as seven interest-rate increases this
year lured investors to U.S. assets. Japanese officials at the
weekend signaled the yen’s drop is acceptable, helping drive the
currency to a 32-month low against the dollar yesterday.

“The trend of buying currencies with higher rates and
selling the yen continues,” said Takeshi Iba, head of currency
trading in Tokyo at Calyon, the securities unit of Credit
Agricole SA. “There’s little chance of a rate increase in
Japan.”

Against the yen, the dollar traded at 120.94 at 8:48 a.m.
in Tokyo from 120.81 late yesterday in New York, according to
electronic foreign-exchange dealing system EBS. It yesterday
touched 121.39, the highest since March 21, 2003. Against the
euro, the U.S. currency was at $1.1791 from $1.1787 yesterday.
The dollar may trade between 120.70 yen and 121.30 yen today,
Iba said.

The dollar dropped 0.3 percent versus the yen and 0.8
percent against the euro on Nov. 22, when minutes from the Nov.
1 Fed policy meeting showed some officials worried about the
risk of raising interest rates too high.

“The economy doesn’t typically move so rapidly that it
would get away from us,” Olson, 62, told reporters after a
speech in Sioux Falls, South Dakota yesterday. The Fed has “an
opportunity to look at the economy continually,” including
between policy meetings, and because of that “we have the
ability to respond very quickly.” Olson votes on monetary
policy.

Shadow Fed

A panel of economists who critique Fed policies yesterday
urged the U.S. central bank to keep raising rates to stem
inflation and public expectations that it may accelerate.

Inflation is outstripping growth in circulating money and
reserve bank deposits, and “these conditions require a more
aggressive stance to ensure that inflation and inflationary
expectations do not take root,” the Shadow Open Market
Committee, formed in 1973, said yesterday in a semi-annual
policy statement released in Washington.

The Fed has raised rates in quarter-percentage point
increments 12 times since June 2004, most recently to 4 percent
on Nov. 1. Policy makers meet next week, and all 69 economists
surveyed by Bloomberg expect rates to rise another quarter point.
The Bank of Japan has kept rates near zero since 2001.

Japan

Bank of Japan Governor Toshihiko Fukui told reporters in
London on Dec. 3 a weaker yen is “not a problem,” and Finance
Minister Sadakazu Tanigaki said the slide reflects relative
economic performance.

Prime Minister Junichiro Koizumi on Nov. 14 said it was
“too early” for the central bank to change its monetary policy.

The yen yesterday also fell to a record against the euro at
142.70. It last traded at 142.41 per euro.

The dollar also may gain on speculation a report will show
U.S. factory orders increased in October, supporting the view
that the Fed will keep raising interest rates.

Orders placed with U.S. factories rose 2.3 percent in
October, after dropping 1.7 percent the prior month, according
to the median forecast of 57 economists surveyed by Bloomberg
News. The Commerce Department is scheduled to release the report
at 10 a.m. in Washington.

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