Yen, Dollar Gain as Recession Concern Spurs Demand for Safety

April 14 (Bloomberg) -- The yen and the dollar rose against higher-yielding currencies on speculation the global recession will deepen, spurring investors to seek safer assets.

The yen gained for the fifth time in six days against the euro after Singapore said its economy may shrink the most since independence in 1965 and on speculation a report this week will show China’s economy cooled to the slowest in almost a decade. The euro halted two days of gains versus the greenback on concern a German report tomorrow will show wholesale prices fell for an eighth month, supporting the case for the region’s central bank to cut interest rates.

“There doesn’t seem to be much improvement in the real economies” around the world, said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “The yen is likely to be bought and the dollar also may be bought as a ‘safe-haven’ currency.”

The yen rose to 133.15 per euro as of 6:32 a.m. in London from 133.81 in New York yesterday. Japan’s currency climbed 0.8 percent against the Australian dollar to 72.68, and advanced 0.7 percent versus New Zealand’s dollar to 58.91. It climbed to 99.76 versus the dollar from 100.10. The dollar strengthened to $1.3349 versus the euro from $1.3368 yesterday.

The Nikkei 225 Stock Average dropped 0.8 percent and Standard & Poor’s 500 Index futures fell 0.9 percent. Sumitomo Realty & Development Co., Japan’s third-largest developer, sank 5.7 percent in Tokyo after missing its profit target.

Euro Weakens

The euro declined the most against the yen in almost a week before Germany’s Federal Statistics Office releases its report on wholesale prices tomorrow. Prices slumped 7.1 percent in March from a year earlier, according to a Bloomberg News survey of economists.

Europe’s single currency also weakened on concern European Central Bank officials this week will signal they may keep lowering rates to support growth. Council member Axel Weber will speak in Hamburg tomorrow and Erkki Liikanen will deliver a speech in Helsinki the following day. ECB President Jean-Claude Trichet said last week the central bank is studying unorthodox ways of boosting the economy.

“The euro remains laden by expectations of another rate cut and the prospect of unconventional monetary easing,” Emmanuel Ng, a Singapore-based economist at Oversea-Chinese Banking Corp., wrote in a research note to clients today.

Singapore, China

Singapore’s economy may shrink as much as 9 percent this year, the trade ministry said today in a statement, reducing its forecast for the third time since early January.

China’s economic growth slowed to 6.2 percent in the first quarter from a year earlier, according to economists surveyed by Bloomberg News, from 6.8 percent the previous three months. The report is due on April 16.

Singapore’s dollar climbed against all of the 16 most- active currencies after the city-state’s central bank said in its twice-yearly policy review that it sees no reason for “any undue weakening” of the local currency.

The Monetary Authority of Singapore “re-centered” the trading band in which the local dollar is managed and said it doesn’t plan to seek either appreciation or depreciation.

“Some in the market had been expecting the MAS to go to a depreciation policy,” said Thomas Harr, a senior currency strategist at Standard Chartered Bank in Singapore. The Singapore dollar “has found a floor now and we are actually trading in the strong half of the band.”

Singapore’s dollar advanced 1.1 percent to S$1.4998 versus the greenback after touching S$1.4963, the strongest level in two months. The Singapore dollar had largely moved in the lower half of the previous policy band since the previous review in October, the central bank said.

Carry Trades

Gains in the yen may be curbed on speculation the so-called carry trade is making a comeback after its longest losing streak in three decades.

Stimulus plans and near-zero interest rates in developed economies are boosting investor confidence in emerging markets and commodity-rich nations with interest rates as much as 12.9 percentage points higher.

Using dollars, euros and yen to buy the currencies of Brazil, Hungary, Indonesia, South Africa, New Zealand and Australia earned 8 percent from March 20 to April 10, that trade’s biggest three-week gain since at least 1999, data compiled by Bloomberg show.

Goldman Sachs Group Inc., Insight Investment Management and Fischer Francis Trees & Watts have begun recommending carry trades, which lost favor last year as the worst financial crisis since the Great Depression drove investors to the relative safety of Treasuries. Now efforts to end the first global recession since World War II are sending money into stocks, emerging markets and commodities.

“The global economy seems to have reached an inflection point,” said Dale Thomas, head of currencies at Insight Investment Management in London, which oversees $121 billion. “We’re set for a period of some classic risk currency trades, where you sell the dollar against emerging-market currencies.”