Yen Extends Advance as Optimism Wanes, Yield Demand Weakens

July 29 (Bloomberg) -- The yen extended its gain versus the euro before a government report that economists said will show orders for durable goods in the U.S. fell last month, curbing demand for higher-yielding assets.

The dollar rebounded from the lowest level this year against the currencies of six major U.S. trading partners after a bigger-than-forecast drop in U.S. consumer confidence triggered a decline in stocks and renewed demand for the safety of the world’s main reserve currency. The yen rose for a second day against the Australian dollar after a report showed Japanese retail sales dropped for a 10th-straight month.

“I’m skeptical about the sustainability of a steady improvement of the economy,” said Takeshi Makita, a Tokyo-based economist at Japan Research Institute Ltd., a unit of Japan’s third-largest banking group Sumitomo Mitsui Financial Group Inc. “When the economy is on the downhill and stocks are falling, the yen strengthens against higher-yielding currencies.”

The euro fell to 133.54 yen at 8:54 a.m. in Tokyo from 133.95 yen yesterday in New York. The dollar was at 94.39 yen from 94.55 yesterday, extending its drop this month to 1.8 percent. The euro slumped to $1.4146 from $1.4167 yesterday. The 16-nation currency traded in July in a range of $1.3833 to yesterday’s high of $1.4304, the strongest level since June 3.

The Australian dollar fell to 77.76 yen from 78.18 yen yesterday in New York where it hit 79.30 yen, the highest since June 15.

The yen rose against all of its 16 major counterparts tracked by Bloomberg on forecasts that U.S. orders for durable goods last month fell 0.6 percent, the first retreat in three months, according to a Bloomberg News survey of economists. The Commerce Department releases the data today.

Dollar Index

The Dollar Index, which the ICE uses to track the greenback against currencies including the euro, yen, pound and Swedish krona, advanced 0.2 percent to 78.974 today, recovering from a 0.4 percent decline to 78.315 yesterday, the lowest level since Dec. 18, after the Standard & Poor’s 500 Index decreased 0.3 percent following a two-week rally.

Stocks declined after the New York-based Conference Board’s U.S. consumer confidence index dropped to 46.6 following a reading of 49.3 in June. The median forecast of 67 economists surveyed by Bloomberg News was for a decrease to 49 this month.

Adding to the global gloom, retail sales in Japan slid 3 percent in June from a year earlier following a 2.8 percent drop the previous month, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg News predicted a decline of 2.5 percent.

Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy’s expected recovery is likely to be “painfully slow” as consumers spend less and save more. She also said the U.S. is showing the “first solid signs” of emerging from recession.

“A gradual recovery means that things won’t feel very good for some time to come,” Yellen said in a speech in Coeur d’Alene, Idaho.