Yen May Gain on Speculation Recession Will Curb Carry Trades

Nov. 27 (Bloomberg) -- The yen may advance for a third against the euro and rise versus the dollar on speculation a global recession will spur investors to pare holdings of higher- yielding assets funded in Japan.

The yen strengthened versus the South African rand before data that may show money-supply growth and inflation are slowing in Europe, giving the European Central Bank more scope to reduce interest rates. Reports yesterday showed U.S. consumer spending, durable-goods orders and new-home sales fell last month as the global financial crisis damped consumption.

“The market is focused on how much the economic outlook will deteriorate in Europe and the U.S.,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd., a unit of Japan’s largest brokerage. “An economic downturn will push up the yen, because traders will be reluctant to take on risk.”

The yen traded at 95.56 per dollar as of 8:46 a.m. in Tokyo from 95.67 late yesterday in New York. Against the euro, it was at 123.20 from 123.24. The euro was little changed at $1.2888 from $1.2880. The yen may gain to 121.90 versus the euro and 94.80 against the yen today, Amikura said.

M3 money supply, which the ECB uses as a gauge of future inflation, slowed to an 8.1 percent gain in October from an 8.6 percent increase the previous month, according to a Bloomberg survey of economists before the data is released today.

Consumer prices in the 15 countries that share the euro rose 2.4 percent in November, slower than a 3.2 percent gain the previous month, a report tomorrow may show.

Consumer Spending

U.S. consumer spending, the biggest contributor to the economy, fell 1 percent last month, after dropping 0.3 percent in September, the Commerce Department reported yesterday. New- home sales in the U.S. fell to an annual pace of 433,000, the lowest level in 17 years. Orders for long-lasting goods declined 6.2 percent, following a 0.2 percent decrease in September.

The Federal Reserve committed up to $800 billion on Nov. 25 in new funding to thaw credit flow for homebuyers, consumers and small businesses.

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, rose 0.8 percent to 85.667 yesterday. The index climbed to 88.463 on Nov. 21, the highest level since April 2006.