Yen Falls on Speculation U.S. Plan Will Inject Funds Into Banks

Jan. 19 (Bloomberg) -- The yen fell to the lowest in more than a week against the dollar on speculation U.S. President- elect Barack Obama will to back an increased financial-rescue effort that injects capital into banks.

The yen also dropped to a more than one-week low versus the euro as Obama’s team say they will use part of the $350 billion remaining from the Troubled Asset Relief Program to help stem foreclosures, according to people familiar with the matter. The yen weakened against all of the 16 most-active currencies today after the U.S. extended a $138 billion lifeline to Bank of America Corp. last week.

“Hopes over the Obama administration are improving risk- taking appetite,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s second-largest bank by market value. “The yen is being sold.”

The yen declined to 91.07 against the dollar as of 9:49 a.m. in Tokyo from 90.72 late in New York on Jan. 16. It reached 91.30, the lowest since Jan. 9. The currency weakened to 121.45 versus the euro from 120.37. It touched 122.17, the lowest level in more than a week.

Against the dollar, the euro advanced to $1.3336 from $1.3267 in New York at the end of last week. The British pound climbed to $1.4857 from $1.4733 and the Swiss franc strengthened to 1.1157 from 1.1197. Trading may be more subdued than usual because of the U.S. public holiday today, Saito said.

The Nikkei 225 Stock Average rose 0.7 percent and the MSCI Asia-Pacific Index of regional shares advanced 0.4 percent.

‘Aggregator Bank’

Japan’s currency weakened the most against Norway’s krone, New Zealand’s dollar and Sweden’s krona as U.S. policy makers signaled the government will create a government-backed “bad” or “aggregator” bank to acquire hundreds of billions of dollars of troubled securities held by lenders.

“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters on Jan. 16 in Washington.

The yen slid 1.9 percent to 13.3143 versus the krone, 1.8 percent to 50.47 versus the New Zealand dollar and 1.7 percent to 11.302 against the krona.

Benchmark interest rates are 3 percent in Norway, 2 percent in Sweden and 5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher rates. The risk is currency market moves erase those profits.

‘Some Optimism’

The pound gained for a fourth day against the yen and the dollar after U.K. Prime Minister Gordon Brown said yesterday the government will announce a package of measures to encourage bank lending today.

“There’s some optimism about the U.K. government’s plan,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is positive for the pound,” which may rise to 137.00 yen and $1.50 today, he said.

The measures are aimed at “getting lending moving in the economy” and will include banks declaring bad debts and losses, Brown said in Egypt. The government is also due to unveil plans to guarantee lending in for households and companies.