Yen May Fall as Optimism Recession Is Easing Spurs Yield Demand

May 19 (Bloomberg) -- The yen may weaken for a second day against the euro on speculation stock gains and signs the global recession is waning will encourage investors to buy higher- yielding assets.

Japan’s currency traded near its lowest in almost a week versus the Australian dollar before a U.S. government report that may show housing starts increased in April, boosting demand for riskier investments. The euro may gain for a second day against the dollar on speculation a German report today will show investor confidence jumped to a two-year high, signaling the worst of the slump may have passed.

“Equities are rising and the worldwide recession may have bottomed out,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This augurs well for risk-taking appetite and is negative for the yen and the dollar.”

The yen traded at 130.56 per euro as of 8:51 a.m. in Tokyo from 130.61 in New York yesterday when it reached 126.98, the highest level since April 29. Japan’s currency was at 96.33 per dollar from 96.30 yesterday when it touched 94.55, the strongest since March 20. The euro bought $1.3550 from $1.3562.

Against the U.S. currency, the Australian dollar was at 76.44 cents from 76.58 cents and the New Zealand dollar traded at 59.58 cents from 59.51 cents. Australia’s dollar bought 73.61 yen from 73.75 yen in New York yesterday when it rose as high as 73.92 yen, the strongest since May 13.

‘Bounce Back’

“We are seeing a bounce back in risk appetite,” Brian Dolan, chief currency strategist at FOREX.com, a unit of the online currency trading firm Gain Capital Group in Bedminster, New Jersey, said in an interview on Bloomberg Television. “This has also seen the yen crosses, carry trades, move higher and the dollar move a little bit weaker.”

The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and krona, traded at 82.559 from 82.529 yesterday, when it fell 0.6 percent. The gauge of the greenback decreased 7.9 percent since reaching a three-year high of 89.62 on March 4 as signs the global slump is easing led investors to sell Treasuries.

U.S. housing starts increased in April to an annual rate of 520,000 from 510,000 the previous month, according to the median forecast of economists surveyed by Bloomberg. The Commerce Department will release the report at 8:30 a.m. in Washington.

Carry Trades

The yen slid 3.2 percent to 46.52 versus the Brazilian real and 3.3 percent to 11.30 versus South Africa’s rand yesterday on speculation investors increased carry trades, in which they get funds in a country with low borrowing costs and buy assets where they expect returns to be higher.

Japan’s target lending rate is 0.1 percent, compared with 10.25 percent in Brazil, 8.5 percent in South Africa, 3 percent in Australia and 2.5 percent in New Zealand.

Japan’s currency started its decline yesterday after Vice Finance Minister Kazuyuki Sugimoto said “excessive moves” in currencies may hurt the economy.

The yen gained 8.5 percent versus the dollar since the collapse of Lehman Brothers Holdings Inc. on Sept. 15 as investors sought refuge from global financial turmoil.

“Excessive moves in currencies are undesirable as they would have a negative effect on the Japanese economy,” Sugimoto said. “We’ll continue to monitor currency markets.”

Waning global sales and a stronger currency hurt Japan’s exporters this year. Toyota Motor Corp. expects global sales to fall by 1.067 million vehicles to 6.5 million in the year ending March 31 and is predicting another annual loss.

The euro rose yesterday from its lowest level in more than a week versus the dollar on speculation a German report today will show investor confidence increased.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to 20 from 13 in April, according to the median forecast in a separate Bloomberg survey. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.