Yen falls after rate increase

The yen fell for a fourth day as the Bank of Japan said interest-rate increases will be gradual, after policy makers raised borrowing costs for the second time in eight months.

Japan’s currency declined after the central bank, which voted 8-1 to increase its overnight lending rate a quarter percentage point to 0.5 percent, predicted inflation will remain near zero percent. The lowest benchmark rate among major economies has encouraged investors to borrow in yen to buy higher-yielding assets, known as the carry trade.

“There could be no rate hike in the coming six months,” said Toru Umemoto, chief currency analyst at Barclays Capital in Tokyo and the most-accurate yen forecaster last year in Bloomberg surveys. “This will provide a safe environment for carry trades.”

The currency dropped to 120.34 against the dollar at 7:08 a.m. in London, from 120.02 in New York yesterday. The yen slid to 158.17 per euro from 157.68. The yen may fall to 125 per dollar by the end of March, Umemoto said.