Yen Weakens After Report Shows Japan’s Exports Slide by Record

March 25 (Bloomberg) -- The yen weakened against the euro and the dollar after a government report showed the export- oriented economy posted the biggest-ever decline in overseas shipments, signaling reduced demand for the nation’s goods.

The currency fell for a fourth day against the greenback as the finance ministry report showed the recession sapped demand for Japan’s cars and electronic goods. Sterling may gain for a third day against the dollar after the U.K. inflation rate quickened, adding to bets the Bank of England will tolerate a stronger pound. The greenback may rise after Nobel Prize-winning economist Paul Krugman said the government will have to seize major lenders, spurring demand for the safety of the dollar.

“The trade report should bode ill for the yen as it reduces demand” for the yen, said Yousuke Hosokawa, a senior currency dealer at Chuo Mitsui Trust and Banking Co. in Tokyo.

The yen dropped to 132.47 per euro as of 9:08 a.m. in Tokyo from 131.81 late in New York yesterday, when it touched 134.51, the weakest level since Oct. 21. The yen declined to 98.21 against the dollar from 97.86. The dollar traded at $1.3490 per euro from $1.3468. The greenback reached $1.3738 on March 19, the weakest level since Jan. 9.

Japan’s exports dropped 49.4 percent in February from a year earlier, the sharpest decline since at least 1980, when the government started to keep comparable data, the Finance Ministry said today in Tokyo.

U.K. Inflation

The pound was at $1.4704 from $1.4681 yesterday, when it touched $1.4778, the highest level since Feb. 10, after an Office for National Statistics report showed annual consumer inflation unexpectedly accelerated.

Consumer prices in the U.K. climbed 3.2 percent last month from a year earlier after a 3 percent increase in January. The median forecast of economists surveyed by Bloomberg was for a 2.6 percent pace.

The pound rose for a fourth day against the yen on speculation Japanese investors will seek higher-yielding assets elsewhere. Sterling rose 0.6 percent to from 144.60 yen yesterday and Brazil’s real advanced 0.5 percent to 43.7075 versus the yen. Japan’s target lending rate of 0.1 percent compares with 11.25 percent in Brazil and 0.5 percent in the U.K.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, gained 0.3 percent to 84.115 after reaching 82.63 on March 19, the lowest level since early January.

The Standard & Poor’s 500 Index fell 2 percent and the MSCI World Index lost 0.7 percent yesterday after Krugman said in an interview with Bloomberg Television the financial crisis will force the government to take over big banks. He also predicted the U.S. economy, which shrank 6.2 percent last quarter, won’t stabilize until late this year.