Yen Rises to Six-Week High Against Euro on Recession Concern

July 8 (Bloomberg) -- The yen strengthened to a six-week high against the euro as Asian stocks fell and Japanese machinery orders unexpectedly declined, adding to signs the global recession is far from over.

Japan’s currency gained the most versus the Australian dollar, South African rand and the British pound on speculation the worldwide slump will damp U.S. corporate earnings, which start today with Alcoa Inc. The South Korean won led Asian currencies lower against the dollar as pessimism about the global recovery damped demand for emerging-market assets.

“Pessimism-driven play continues as the wariness about the prospects of the U.S. economy prevails,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan’s third-largest banking group. “The yen may reach 92 per dollar and 127 against the euro” as it attracts buying as a refuge from the global recession, he said.

The yen rose to 131.44 per euro as of 10:01 a.m. in Tokyo from 132.13 yesterday in New York, after rising to 131.20, the strongest since May 22. Japan’s currency advanced to 94.56 per dollar, after rising to 94.50, the strongest since June 1. The euro traded at $1.3902 from $1.3924.

The won weakened 0.5 percent to 1,279.05 per dollar. The Nikkei 225 Stock Average declined 1.8 percent and the MSCI Asia Pacific Index of regional shares fell 1.3 percent. The yen typically strengthens during times of financial turmoil as Japan’s trade surplus means the nation does not have to rely on overseas lenders.

Machine Orders

The yen stayed higher after a Japanese government report showed machinery orders, an indicator of capital investment in the next three to six months, unexpectedly declined in May. Orders fell 3 percent from April, following a 5.4 percent drop the previous month. Economists expected a gain of 2 percent, according to a Bloomberg News survey.

A separate Japanese report showed the current-account surplus narrowed for a fourth month in May, adding to signs the global economy will take time to recover. The surplus shrank 34.3 percent from a year earlier to 1.302 trillion yen ($13.7 billion), the Ministry of Finance said in Tokyo.

“The market showed a knee-jerk reaction to the poor data and bought the yen as a safe-haven from the global gloom,” said Mizuho Shimozono, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group.

The dollar fell to a five-week low against the yen before Alcoa kicks off the earnings season as the first company in the Dow average to report results. Analysts estimate profits fell an average 34 percent at Standard & Poor’s 500 companies in the second quarter and will decrease 21 percent from July through September after plunging about 60 percent in the year’s first three months, according to data compiled by Bloomberg.

The dollar also weakened for a third day against the yen on speculation the greenback’s role as the world’s reserve currency will be questioned at a Group of Eight meeting starting today in L’Aquila, Italy.