Yen Gains for Second Day Against Euro on CIT Bankruptcy Concern

July 22 (Bloomberg) -- The yen rose for a second day against the euro on concern U.S. commercial lender CIT Group Inc. will file for bankruptcy, renewing demand for safer assets.

The Australian dollar fell from near a one-month high against the U.S. currency before a government report that economists say will show the annual inflation rate dropped, backing the case for the central bank to keep interest rates low. The pound dropped from near a three-week high against the dollar after the U.K. government said the budget deficit climbed in June to the highest for that month since records began in 1993.

“Doubts remain about whether the U.S. financial industry will make a sustained recovery,” said Soichiro Mori, manager of the foreign-exchange business promotion department at FXOnline Japan Co., a margin-trading company. “Investors may cut back long positions on higher-yielding currencies against the yen.” A long position is a bet an asset will rise.

The yen strengthened to 132.92 per euro as of 8:32 a.m. in Tokyo from 133.36 yesterday in New York. Japan’s currency gained to 93.57 per from dollar 93.73. The dollar traded at $1.4212 per euro from $1.4226.

Australia’s currency fell to 81.53 U.S. cents from 81.82 cents in New York yesterday, when it rose to 81.93 cents, the highest since June 12. The pound dropped to $1.6435 from $1.6459. It climbed to $1.6558 on July 20, the strongest since June 30.

Australian CPI

Australia’s consumer price index increased 1.5 percent last quarter from a year earlier, after gaining 2.5 percent in the prior three months, according to a Bloomberg News survey of economists. The Bureau of Statistics will release the figures at 11:30 a.m. in Sydney. The Reserve Bank of Australia aims to keep inflation between 2 percent and 3 percent on average.

Benchmark rates are 3 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nation’s higher-yielding assets. The risk in such trades is that currency market moves may erase any profits.

New York-based CIT said yesterday it expected to report a loss of more than $1.5 billion for the second quarter and may need to file for bankruptcy if it’s unable to tender for notes maturing next month.

“It is apparent that the U.S. financial system is still fragile and we may see more bankruptcy among regional lenders there,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France’s third- largest bank. “The Fed can’t possibly explore an exit from its unconventional monetary policy any time soon.”