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Hirohisa Fujii, Japan’s new finance minister, says he doesn’t support a weak yen. The world’s biggest banks say that’s just what he may get.

While the yen gained against all but one of the 16 most- actively traded currencies since early August as the Democratic Party of Japan became the likely winner in national elections, forecasters say it will decline 5.2 percent against the dollar and 0.7 percent versus the euro by year-end. The economy is too weak to support a stronger rate, based on the median of 40 estimates in a Bloomberg survey.

Japan will be the only Group-of-10 nation that won’t raise borrowing costs in 2010, keeping its benchmark interest rate at a record low 0.1 percent, the survey shows. The economy will expand 0.8 percent next year after contracting 6 percent in 2009, according to median forecasts, putting assets in the world’s second-biggest economy at a disadvantage to those in countries with higher borrowing costs.

“Everyone is seemingly buying the yen, which I think is ridiculous,” said Jim O’Neill, head of global economic research at Goldman Sachs Group Inc. in London. “The true underlying fundamentals for the yen in my book have deteriorated significantly.”

New York-based Goldman Sachs, which earned more than $100 million from trading for a record 46 days last quarter, predicts the yen will weaken to 98 per dollar and 142 per euro by the end of the year, from 92.23 and 135.25 as of 7:09 a.m. in New York today. Bank of America Corp., the biggest U.S. bank, and HSBC
Holdings Plc, the largest in Europe, are even more bearish.

                           Yen’s Rally

The yen rallied 6.6 percent against the dollar and 3.3 percent compared with the euro as the Democratic Party of Japan, led by Yukio Hatoyama, 62, gained in the polls...

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