Yen Falls a 2nd Day Versus Euro on Outlook for Japan’s Economy

March 26 (Bloomberg) -- The yen fell for a second day against the euro on speculation government reports will show the recession in Japan is deepening, reducing demand for the currency as a refuge from the financial turmoil.

The dollar is poised for a third weekly decline against the euro on concern Federal Reserve officials speaking today will indicate the central bank is determined to keep borrowing costs low to help revive the economy. Australia’s dollar strengthened for a second day against the greenback on expectations a rebound in commodity prices will boost the resource-rich economy.

“Incoming data are likely to confirm the poor state of the Japanese economy,” said Hiroshi Maeba, deputy managing director of foreign-exchange trading in Tokyo at Nomura Securities Co., a unit of Japan’s biggest brokerage by assets. “The yen may be sold on weak data.”

The yen declined to 133.04 per euro as of 10:21 a.m. in Tokyo from 132.48 late in New York yesterday. The Japanese currency weakened to 97.72 per dollar from 97.54. The dollar traded at $1.3616 per euro from $1.3583 yesterday.

The Australian dollar climbed to 70.11 U.S. cents from 69.78 cents yesterday, and the New Zealand dollar strengthened to 57.03 U.S. cents from 56.61.

The yen fell against all of the 16 most-active currencies today before the trade ministry’s retail sales report tomorrow. Sales fell 3 percent in February from a year earlier, after declining 2.4 percent the prior month, according to a Bloomberg News survey of economists.

Tankan Index

The Bank of Japan’s Tankan index, which measures confidence among large makers of cars and electronics, slid to minus 55 this quarter from minus 24, the lowest level in more than 30 years, according to a separate Bloomberg survey before the April 1 report. A negative number means pessimists outnumber optimists.

Gains of the euro may be limited by speculation European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo will signal additional interest-rate reductions when he speaks today in Valencia, Spain.

ECB President Jean-Claude Trichet said this week the 1.5 percent main refinancing rate may be cut further as policy makers work to counter the global economic slump.

“Slow policy action by the ECB so far may prolong a recession in the region, leaving the window of opportunity open for more monetary easing,” Takeshi Makita, a Tokyo-based economist at Japan Research Institute Ltd., a unit of the nation’s third-largest banking group. “The euro is likely to resume underperforming against the dollar and the yen.”

ECB Rates

The ECB is expected to lower rates by half a percentage point at their April 2 policy meeting, according to another Bloomberg survey. The euro is poised to fall for a fourth quarter against the dollar, the longest streak of losses in three years.

The Dollar Index fell for a second day after San Francisco Fed President Janet Yellen said in a speech in New York yesterday there are “severe” risks warranting whatever policies are needed to revive growth.

Dallas Fed President Richard Fisher speaks at 12 p.m. in Dayton, Ohio, and Richmond Fed President Jeffrey Lacker delivers a speech at 12:30 p.m. in Charleston, South Carolina.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, declined 0.2 percent to 83.677.

Reserve Currency

Losses in the dollar may be limited after Treasury Secretary Timothy Geithner predicted the greenback will maintain its role as the world’s primary reserve currency, clarifying earlier comments on a Chinese proposal to overhaul the global monetary system.

In response to a question at a Council on Foreign Relations event in New York on People’s Bank of China Governor Zhou Xiaochuan’s proposal regarding the use of special drawing rights, the Treasury secretary said earlier, “we’re actually quite open to that suggestion.”

Zhou said March 23 in a report posted on the bank’s Web site that special drawing rights, monetary units valued against a composite of currencies, should also be used for international trade, financial transactions and commodity pricing. The IMF should aim in the longer term to create a “super-sovereign reserve currency,” Zhou said.

The dollar has risen 7.8 percent against the yen this year, heading for the best quarterly performance since the final three months of 2001.