Yen Heads for Sixth Weekly Loss Versus Euro as Stocks Advance

March 27 (Bloomberg) -- The yen headed for a sixth weekly drop against the euro, the longest losing streak in eight months, as stocks rallied on optimism the worst of the global economic slump is over, sapping demand for the currency as a refuge.

Japan’s currency headed for its worst month against the euro since December 2000 as a report today showed retail sales fell the most in seven years. The Australian and New Zealand dollars headed for the biggest monthly gains since 1985 against the greenback as prices jumped for commodities the nations export. Demand for the yen and dollar has fallen as central banks cut interest rates and pumped cash into financial markets, boosting appetite for higher-yielding assets.

“The anxiety about credit risks is now easing thanks to aggressive policy action,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of the French asset management firm that supervises the equivalent of $338 billion. “Prospects for stock markets have improved, allowing investors to reinvest in higher-yielding currencies, which were sold in times of crisis.”

The yen traded at 133.48 against the euro as of 11:53 a.m. in Tokyo from 133.52 late yesterday in New York and 130.29 a week ago. Japan’s currency was at 98.44 versus the dollar from 98.71 yesterday. The euro traded at $1.3561 from $1.3526.

New Zealand’s dollar rose to 57.74 U.S. cents from 57.55 cents yesterday, while Australia’s currency was little changed at 69.99 U.S. cents from 70.16 cents.

The Nikkei 225 Stock Average headed for a third weekly gain, adding 1.1 percent today, and the MSCI Asia Pacific Index of regional shares gained 1.0 percent. The Standard & Poor’s 500 Index advanced 2.3 percent yesterday. The Treasury Department announced earlier this week a scheme to fund purchases of as much as $1 trillion in toxic assets from banks.

Japan’s Economy

The yen has also lost its appeal as concern intensified about the deterioration of the world’s second-biggest economy.

“Economic conditions are poor and the political situation is shaky,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “These hurt confidence in the yen.”

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 Bloomberg survey before the April 1 report. A negative number means pessimists outnumber optimists.

The yen fell 7.5 percent this month against the euro, heading for its biggest loss since a 10.8 percent decline in December 2000. Japan’s currency also headed for its first quarterly loss against the dollar since June, dropping 8.1 percent as Japan’s export-oriented economy shrank an annualized 12 percent last quarter, the biggest contraction since 1974.

ECB’s Action

The euro may extend this month’s gains on speculation the European Central Bank won’t cut interest rates to zero and will avoid printing money to buy government bonds, maintaining the allure of the 16-nation region’s assets.

Europe’s currency may advance for a third week versus the dollar, its longest run since December, after ECB Governing Council member Ewald Nowotny said the bank’s liquidity-boosting measures are “sufficient” for now, in an interview with Der Standard that will be published today.

“The ECB has indicated it won’t lower rates to zero and won’t adopt quantitative easing,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This makes it easy to buy the euro,’ which may strengthen to $1.3620 and 133.90 yen today, he said.

ECB Lending

The ECB offers to lend banks as much money as they want against eligible collateral for periods ranging from one week to six months. ECB Vice President Lucas Papademos said yesterday in Brussels the central bank may offer longer-term loans to banks and also may buy corporate debt to boost the region’s economy.

The euro gained for a sixth week against the yen as the yield advantage of 10-year German bunds over Japanese government debt increased to 1.80 percentage points today from 1.70 percentage points on March 20. That’s the longest streak of gains since July, when the European Central Bank last raised its policy rate to 4.25 percent.

The ECB’s policy rate is 1.5 percent, compared with 0.1 percent in Japan and zero to 0.25 percent in the U.S.

Repatriation Flows

Demand for the yen may be boosted on speculation Japanese companies and investors will repatriate earnings generated outside the nation before the fiscal year ends on March 31.

“It’s quarterly and fiscal year-end, so there’s talk that Japanese life insurers and exporters will need to buy the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is a last-minute kind of thing.”

Japan’s currency was the biggest gainer in 2008 among the 171 currencies tracked by Bloomberg as the global financial meltdown led investors to buy assets perceived as safe.

The Australian and New Zealand dollars also rose on speculation the countries’ central banks are close to ending the reductions in interest rates.

Australia’s dollar appreciated 10 percent this month, the most since February 1973. New Zealand’s currency has gained 15 percent against the greenback, its largest advance since August 1985.

Traders reduced to 25 basis points their expectations of the next cuts by policy makers in Australia and New Zealand, according to Credit Suisse Group AG indexes.

Benchmark rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.