Yen Falls as Prospect Global Slump Easing Reduces Refuge Demand

April 29 (Bloomberg) -- The yen fell against the dollar for the first time in more than a week before a U.S. report that may show the world’s largest economy shrank at a slower pace, reducing demand for the safety of the Japanese currency.

The yen also weakened versus all of the 16 most-active currencies as Asian stocks rose, reviving confidence among investors to buy higher-yielding assets. Gains in the euro may be limited on concern disagreement is deepening among European Central Bank officials on measures needed to combat the 16- nation region’s recession.

“Any signs the pace of contraction in the U.S. economy is easing will probably bolster investor confidence,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is likely to reduce ‘safe-haven’ demand for the dollar and the yen.”

The yen declined to 127.41 per euro as of 9:50 a.m. in Singapore from 126.79 in New York yesterday. The currency fell to 96.89 against the dollar from 96.45. The euro traded at $1.3150 from $1.3149 yesterday in New York. Europe’s single currency dropped to 86.67 British pence from 89.86 pence.

Australia’s dollar rose to 71.08 U.S. cents from 70.62 cents and climbed to 68.86 yen from 68.10 yen yesterday in New York. New Zealand’s dollar advanced to 56.35 cents from 55.88 cents and strengthened to 54.60 yen from 53.90 yen.

Benchmark interest rates are 3 percent in New Zealand and Australia, compared with 0.1 percent in Japan and as low as zero percent 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.

The volume of currency trading is likely to be less than normal because of a national holiday in Japan, said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney.

U.S. Economy, Fed

The Dollar Index was little changed. The U.S. economy probably contracted at an annual rate of 4.7 percent in the first quarter, after shrinking 6.3 percent in the final three months of 2008, according to a Bloomberg News survey. The Commerce Department releases the data at 8:30 a.m. in Washington.

The New York-based Conference Board said yesterday its consumer confidence index climbed to 39.2 this month, the highest level since November, from 26.9 in March. The gain in the index was the biggest since 2005.

The Federal Reserve will keep its target lending rate in a range of zero to 0.25 percent, a separate Bloomberg survey showed. Policy makers will announce their decisions on interest rates and goals for purchases of Treasuries and mortgage securities at 2:15 p.m. in Washington.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona was at 85.127 from 85.158 yesterday.

‘Positive Territory’

The yen fell against the Australian and New Zealand dollars for the first time in three days as the MSCI Asia-Pacific excluding Japan Index gained 0.5 percent and Standard & Poor’s 500 Index futures rose 0.3 percent.

“Equity markets and stock futures are in positive territory,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd. “This is causing selling of the yen.”

The VIX Index, a measure of market volatility known as Wall Street’s “fear gauge,” declined 1 percent to 37.95 yesterday, indicating traders are becoming more confident about stock- market advances.

The euro may weaken against the dollar on speculation discord is increasing among ECB policy makers over measures needed to counter the recession.

ECB Executive Board member Lorenzo Bini Smaghi yesterday devoted much of his speech to highlighting the difficulties for the central bank of buying assets, suggesting he shares Bundesbank President Axel Weber’s view.

ECB Officials

Weber has said he doesn’t favor cutting the benchmark rate below 1 percent and is against buying assets, while others such as Athanasios Orphanides of Cyprus don’t want to rule those options out. Fellow member Juergen Stark will speak today in Siegen, Germany, and Ewald Nowotny will speak in Vienna tomorrow.

“We’re getting somewhat confusing hints from the very large number of ECB members,” said Westpac’s Callow. “They have so many officials and they’re not speaking with one voice. We’re inclined to sell the euro on rallies.”

Investors maintained bets the ECB will cut its 1.25 percent target lending rate at its next meeting on May 7. The implied yield on the three-month Euribor interest-rate futures contract for June delivery was unchanged from yesterday at 1.280 percent.