Yen May Extend Decline on Bets Stock Gains to Sap Safety Demand

March 27 (Bloomberg) -- The yen may fall against the euro for a third day on speculation Asian stocks will extend a worldwide rally on bets the worst of the global economic slump is over, adding demand for higher-yielding currencies.

The Japanese currency headed for its worst month against the euro since 2000 as a government report today showed retail sales fell the most in seven years. New Zealand’s dollar gained after a government report showed the economy shrank 0.9 percent last quarter, while economists expected a 1.1 percent drop.

“The anxiety about credit risks is now easing thanks to aggressive policy action in the U.S.,” 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 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 8:52 a.m. in Tokyo from 133.52 late yesterday in New York. Japan’s currency was at 98.66 versus the dollar from 98.71. The euro traded at $1.3528 from $1.3526.

New Zealand’s dollar rose to 57.66 U.S. cents from 57.55 cents yesterday.

The Standard & Poor’s 500 Index climbed 2.2 percent yesterday and has gained 13 percent this month. The MSCI Asia Pacific index of regional shares gained 0.1 percent today.

‘Net Selling’

“We are seeing net selling of both the yen and the franc amid a pullback in risk aversion,” Samarjit Shankar, a strategist in Boston at Bank of New York Mellon, wrote in a note to clients. The company, which administers more than $20 trillion, aggregates the flows it observes in a daily report.

The Swiss franc, which was also bought as a refuge from the global recession, lost as much as 2.8 percent yesterday to NZ$1.5417 and 2.3 percent to 8.2774 South African rand on reduced demand for safety.

The Swiss National Bank started buying foreign currencies on March 12 to weaken the franc under plans to “forcefully relax” monetary conditions and end the country’s recession. The franc was headed for its worst month against the euro since November, declining 3.1 percent since the end of February.

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.

Retail Sales

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, as concern intensified about the health of the world’s second-biggest economy.

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

Japanese retail sales fell 5.8 percent in February from a year earlier, after declining 2.4 percent in January, the Trade Ministry said in Tokyo. Consumer spending accounts for nearly 55 percent of Japan’s gross domestic product.

A separate government report today showed prices excluding fresh food were unchanged last month from a year earlier, matching the median estimate of economists surveyed by Bloomberg.

Senior Vice Finance Minister Koichi Hirata resigned yesterday after he sold 616 million yen ($6.2 million) of shares this month. Japan adopted a code of conduct in 2001 that advises government ministers not to directly trade securities.

Finance Minister Shoichi Nakagawa quit last month amid accusations he was drunk at a press conference, raising questions about Prime Minister Aso Taro’s leadership of the ruling Liberal Democratic Party before elections that must be called by September.

The yen headed for its first quarterly loss against the dollar since June, dropping 8.1 percent. The greenback gained 8.5 percent versus the yen in February as Japan’s export- oriented economy shrank an annualized 12 percent in the fourth quarter, the biggest contraction since 1974.