Yen Heads for Sixth Weekly Loss on Political Turmoil, Recession

March 6 (Bloomberg) -- The yen headed for a sixth week of declines against the dollar on concern that Japan’s political turmoil and economic slump are worsening, reducing the appeal of the currency.

The yen was poised for its longest losing streak versus the greenback in nine months after local media reported Japanese prosecutors suspect a group headed by Trade Minister Toshihiro Nikai of taking illegal political donations. The dollar traded near a three-month high against the euro on speculation a slide in stocks will increase demand for the relative safety of the U.S. currency.

“Political uncertainty seems to be mounting and the economy isn’t showing any signs at all of improving,” said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank AG, Germany’s second-largest lender. “The yen is likely to be sold” to 99 against the dollar and 124.10 per euro today, he said.

The yen traded at 98.09 against the dollar as of 11:40 a.m. in Tokyo from 98.07 late in New York yesterday, and down from 97.57 late last week in New York, heading for a 0.5 percent weekly drop. Japan’s currency declined to 123.26 per euro from 123.00 yesterday.

Europe’s single currency traded at $1.2562 from $1.2540 late in New York yesterday. It was at 88.72 British pence from 88.82 pence. The pound rose to $1.4160 from $1.4118 and the Swiss franc climbed to 1.1677 from 1.1713.

‘Much Worse’

The yen fell against 14 of the 16 major currencies today on concern Japan’s political turmoil will make it harder for the government to cope with a deepening recession. Finance Minister Kaoru Yosano said today the nation’s economic data has been “much worse” than expected and the government will need to revise its gross domestic product forecast soon.

Japanese machinery orders may have slumped 40.2 percent in January from a year earlier, according to a Bloomberg News survey of economists before the March 11 report. The world’s second-biggest economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since the 1974 oil crisis.

Nikai told reporters in Tokyo today he had no knowledge of an investigation into one of his political groups over suspected campaign donations and had done nothing wrong. Prosecutors suspect a group he headed received donations from Nishimatsu Construction Co., the Sankei newspaper reported today, without saying where it got the information.

Yen to Fall

The yen will fall to 102 against the dollar as risk sentiment improves and a weakening domestic economy prompts investors to buy assets outside Japan, Barclays Capital said.

The currency has lost 8.8 percent since strengthening to 87.12 per dollar on Jan. 21, the highest since 1995, as investors sold higher-yielding assets to repay low-cost borrowings in Japan. The yen will weaken 4 percent against the greenback over the next three months, Barclays said, revising last month’s forecast for the currency to strengthen to 86.

“The deteriorating state of both the economy and the political situation appears likely to add momentum to negative sentiment about Japanese assets,” Toru Umemoto and Yuki Sakasai, Tokyo-based strategists at Barclays, wrote in a research note yesterday. “The Japanese current account is declining, outward foreign direct investment increasing and Japanese investors continue to purchase foreign securities.”

The Dollar Index, which the ICE uses to track the greenback against the currencies of six major U.S. trading partners, headed for a fourth weekly advance after U.S. and Asian stocks slumped, encouraging investors to seek shelter from the financial turmoil.

‘Deteriorating’

“The deteriorating global backdrop is reviving risk aversion,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This may encourage demand for the dollar.”

The Dollar Index gained 1.1 percent this week to 88.955 after JPMorgan Chase & Co., the second-largest U.S. bank, had its rating outlook cut to negative from stable. The Standard & Poor’s 500 Index dropped 4.3 percent yesterday to the lowest level since 1996 and the MCSI Asia Pacific Index of regional shares fell 1.7 percent today, set for a fourth week of declines.

The greenback advanced against 12 of the 16 major currencies before a U.S. Labor Department report today that economists say will show a 14th month of job losses, also prompting investors to reduce holdings of riskier assets.

“With the ongoing uncertainty, particularly surrounding financial institutions, and disappointing data, investors should continue to seek havens,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. “Dollar assets remain an attractive option to risk- averse investors.”

U.S. employers cut 650,000 jobs in February, and the unemployment rate surged to 7.9 percent, according to the median forecasts in Bloomberg News surveys of analysts. The Labor Department’s payroll report is due at 8:30 a.m. in Washington.