NEW YORK — NEW YORK - The yen surged to its highest against the dollar in more than two years yesterday after a European Group of Seven official said the organization may call on countries to let the market set foreign-exchange rates.
Japan's currency extended its gains after Bank of Japan Governor Toshihiko Fukui told reporters that "it's not good to react hastily to currency moves," suggesting the central bank may let the yen strengthen after a 2.9 percent advance this week against the U.S. dollar.
"We could see a Japanese government more willing to let the yen appreciate," said David Durrant, chief currency strategist in New York at Bank Julius Baer & Co. "The Bank of Japan has been adopting a more defensive stance in the currency markets instead of an aggressive one."
Japan's currency rose to 113.99 yen per dollar in New York trading, from 115.25 Thursday, the highest since Jan. 4, 2001. It climbed to 129.61 per euro, from 129.72. The yen was the top performer against the dollar this week.
Group of Seven officials meeting in Dubai this weekend are working on a statement to be published today. The current version, which may change, says market forces should set foreign-exchange levels, said the G-7 official, who asked not to be identified.
"In the context of exchange rates, we will strengthen the dialogue with other major economic areas to promote a smooth adjustment of international imbalances, based on market mechanisms," the draft statement reads, according to the official.
U.S. Treasury Secretary John W. Snow said he will ask the G-7 to change its policy for the first time in more than six years and back "flexible" currency exchange rates.
"The world trading system works best under a regime of market-based exchange rates," Snow told reporters as he left Pakistan for the United Arab Emirates.
The dollar also fell against the euro after reports on the G-7 draft, weakening to $1.1368 per euro. The drop brought this week's decline against the common currency to 0.7 percent. The dollar is up 1.2 percent against the euro this quarter.
G-7 officials "are acknowledging there are imbalances, which means they're acknowledging the dollar should go down," said Marcel Kasumovich, a currency strategy for Merrill Lynch & Co. in New York.