Yen Falls Versus Higher-Yield Currencies as Slump Concern Eases

July 10 (Bloomberg) -- The yen fell against higher-yielding currencies, paring a weekly gain, as concern eased that the global economic recovery will be prolonged.

The yen weakened the most against the Australian and New Zealand dollars of the 16 most-traded currencies after the Standard & Poor’s 500 Index rose for the first time in three days, encouraging investors to buy riskier assets. The dollar headed for a weekly loss against the euro before a U.S. government report that economists say will show the trade deficit widened to the most in four months.

“At a time when the global economy is on the mend, there is little reason to push the yen higher,” said Yuki Sakasai, a foreign-exchange strategist in Tokyo at Barclays Bank Plc. The yen will weaken, he said.

The yen fell 0.3 percent to 73.01 per Australian dollar as of 8:26 a.m. in Tokyo, from 72.80 yesterday in New York. Japan’s currency declined 0.5 percent to 58.84 to the New Zealand dollar from 58.58. It was little changed at 93.07 against the U.S. dollar from 92.99 and traded at 130.43 per euro from 130.36. The dollar was at $1.4015 per euro from $1.4020.

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ assets. The risk in such trades is that currency moves can erase profits.

Japan’s currency still headed for a 2.9 percent weekly decline against the euro as speculation the recovery from the recession will be slow prompted investors to seek safer assets. The yen typically rises during times of financial turmoil because Japan’s trade surplus reduces the nation’s reliance on overseas lenders.

Watching Closely

Japan’s Vice Finance Minister Kazuyuki Sugimoto said at a press conference in Tokyo yesterday that the government will keep watching currency markets closely.

A stronger yen may squeeze corporate profits of exporters, which could hurt households by eroding their wages, though it can also benefit consumers and companies by lowering food and energy costs, Sugimoto said.

“As the ongoing recovery is still fragile, we can’t rule out the possibility of the Bank of Japan intervening in the market to prevent the appreciation of the yen if the currency breaches 90 per dollar,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co.