Yen Declines as Signs of U.S. Recovery Boost Demand for Yield

May 27 (Bloomberg) -- The yen weakened as U.S. economic reports added to evidence the start of a recovery is near, reducing demand for safety.

The yen fell against 15 of the 16 most-active currencies after data showed U.S. consumer confidence climbed this month to the highest since September and manufacturing in the central Atlantic region unexpectedly rose. Australia’s dollar gained for a second day against the yen on speculation stocks will extend a global rally, boosting appetite for high-yielding assets.

“When there is a bit of optimism about the economy, demand for the safe-haven currencies weakens,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The dollar, in particular, is hostage to a possible capital outflow from dollar-denominated assets to riskier assets.”

The yen declined to 133.34 per euro as of 8:51 a.m. in Tokyo from 132.90 in New York yesterday. The dollar traded at $1.3997 per euro from $1.3984. It touched $1.4051 on May 22, the weakest level since Jan. 2. The yen bought 95.26 versus the dollar from 95.03.

The Australian dollar rose to 75.03 yen from 74.71 yesterday. The Standard & Poor’s 500 Index added 2.6 percent yesterday and the MSCI World Index climbed 1.7 percent.

The dollar dropped to C$1.1152 from C$1.1164 yesterday, after reaching C$1.1151, the lowest level since Oct. 8. The greenback also fell to $1.5972 per British pound from $1.5926 after touching $1.5977, the weakest since Nov. 6.

‘Road to Recovery’

The Conference Board said its index of U.S. consumer sentiment surged in May to 54.9, higher than forecast and the biggest gain since April 2003. An index of manufacturing in the central Atlantic region climbed to 4 this month, the Richmond Federal Reserve Bank reported.

“Hopes the U.S. is on the road to recovery and strong global equities are reinvigorating risk appetite,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is reducing ‘safe-haven’ demand for the dollar and the yen.”

Combined sales of new and existing homes likely advanced to a 5.02 million annual rate from a 4.93 million pace in March, according to a Bloomberg News survey of economists before the release of data today and tomorrow.

Sales of existing houses, which account for more than 90 percent of the market, rose 2 percent in April to a 4.66 million annual rate from a 4.57 million pace the prior month, according to the survey median. The National Association of Realtors’ report is due today. Tomorrow, Commerce Department figures may show new-home sales increased 1.1 percent to a 360,000 annual rate, the most this year, the survey showed.

The yen held declines against the dollar after a government report showed the world’s second-largest economy unexpectedly posted a trade surplus in April.

Japan’s trade surplus totaled 68.9 billion yen ($724 million) for a third-straight month of surplus, compared with the median forecast for a 55.0 billion yen shortfall in a Bloomberg News survey of economists.