Yen Near Nine-Month High Amid Signs Global Recovery Will Slow

Jan. 27 (Bloomberg) -- The yen traded near a nine-month high against the euro on concern the global economic recovery will slow, increasing demand for Japan’s currency as a refuge.

The yen was near a five-week high against the dollar as the International Monetary Fund said the global financial system remains “fragile,” with sovereign debt posing a risk to markets. The euro may fall against the dollar for a second day after European Central Bank executive board member Juergen Stark said yesterday policy makers are “seriously concerned” about mounting deficits in the region.

“Risk aversion is strong among nations, making it easy for the yen to be bought,” said Masahide Tanaka, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s second-largest lender. “The yen will remain vulnerable to ups and downs in risk sentiment.”

The yen traded at 126.23 per euro at 8:29 a.m. in Tokyo from 126.16 in New York yesterday, when it reached 125.68, the strongest level since April 28. Japan’s currency fetched 89.66 per dollar from 89.65. It touched 89.35 yesterday, the highest since Dec. 18. The dollar was at $1.4079 per euro from $1.4072. It reached $1.4029 on Jan. 21, the most since July 30.

Banks may need to significantly increase their capital to support the credit recovery and help sustain economic growth, the Washington-based IMF said yesterday in an update to its Global Financial Stability Report.

Debt Concerns

The euro fell yesterday against the dollar as the ECB’s Stark said in Frankfurt that the central bank is “seriously concerned about the sharp rise forecast for public deficits and debt in euro member countries.”

European governments may need to borrow 2.2 trillion euros ($3.1 trillion) from capital markets in 2010, or 19 percent of GDP, to finance deficits and roll over existing debt, Fitch Ratings said yesterday.

The yen briefly pared gains yesterday after Standard & Poor’s said Japan’s rating could be cut if the government fails to come up with measures to spur growth and economic data remain weak. S&P retained Japan’s AA long-term rating.

“Some investors probably used this news to do short selling on the yen,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender. “But yen selling won’t last as long as domestic investors keep Japan’s government bonds.”

The Federal Reserve will keep its key overnight rate in a range between zero and 0.25 percent today, according to all 93 economists in a Bloomberg News survey.