Yen Trades Near 2-Week High as Report May Show U.S. Output Fell

April 15 (Bloomberg) -- The yen traded near a two-week high against the dollar before U.S. reports that economists say will show industrial output declined for a fifth month and a gauge of manufacturing contracted.

The euro may decline for a second day versus the pound on concern a German report may show wholesale prices dropped for an fifth month, supporting the case for the European Central Bank to lower interest rates. The yen was also near the strongest in a week against the euro on speculation a decline in U.S. stocks will spur investors to reduce holdings of higher-yielding assets.

“The markets are returning to reality from an exuberant state,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-biggest bank. “This is just a correction, which is leading to some buying of the yen,”, he said.

The yen traded at 99.08 against the dollar at 9:17 a.m. in Tokyo from 98.98 in New York yesterday. It earlier reached 98.74, the highest level since April 2. Japan’s currency was at 131.44 per euro from 131.25. The dollar bought $1.3267 per euro from $1.3259. The euro was at 88.99 pence from 89.01 pence.

The yen may advance to 98.50 against the dollar and 130.80 per euro today, Muramatsu said.

The Standard & Poor’s 500 Index dropped 2 percent yesterday as Goldman Sachs Group Inc. fell 11 percent after raising $5 billion in a share sale to help repay $10 billion in government rescue funds.

Benchmark rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and in New Zealand, making assets in the South Pacific nations attractive.

Industrial Output

U.S. industrial production fell 0.9 percent in March, according to a Bloomberg News survey before the Federal Reserve report today. The Fed Bank of New York’s Empire State index of manufacturing, also due today, was minus 35 in April, a 12th month of contraction, a separate Bloomberg survey shows.

The euro traded near a five-week low against the pound before Germany’s Federal Statistics Office releases its report on wholesale prices today. Prices fell 7.1 percent in March from a year earlier, after a 5.7 percent drop the previous month, according to a separate Bloomberg survey.

“If inflation threatens to remain significantly below 2 percent for a considerable period of time, then additional policy easing could be warranted to counter that eventuality,” Athanasios Orphanides, a European Central Bank council member, said in an April 11 interview in Nicosia.

The ECB cut its benchmark interest rate on April 2 less than economists forecast, reducing it by a quarter-percentage point to 1.25 percent.

Fed Chairman Ben S. Bernanke said yesterday the dollar will keep its role as world’s main reserve currency for the “foreseeable future.” He responded to a question after a speech in Atlanta.