Yen Falls as Global Economic Recovery Signs Spur Yield Demand

May 4 (Bloomberg) -- The yen fell against most higher- yielding currencies as signs the global economic recovery is gathering momentum boosted demand for riskier investments.

Japan’s currency weakened versus 14 of its 16 major counterparts before a U.S. report that may show pending home sales gained for a second month and a U.K. report forecast to show manufacturing grew in April. Australia’s dollar advanced toward its highest level in 19 months against the yen on speculation the nation’s central bank will raise interest rates.

“There’s every reason to believe that growth prospects will be very good,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The mood is for risk taking, and we’ll see a drop in the yen.”

The yen fell to 124.80 per euro at 8:51 a.m. in Tokyo from 124.74 in New York yesterday. It was at 94.60 per dollar from 94.54. The yen slid to 87.63 versus the Australian dollar from 87.54, after reaching 88.06 on April 30, the weakest level since September 2008. The euro fetched $1.3191 from $1.3195.

The Dow Jones Industrial Average rose the most since February after a report showed U.S. manufacturing expanded in April at the fastest pace since June 2004. The number of contracts to buy previously owned homes rose 5 percent in March, a Bloomberg News survey showed before the report today.

A gauge of U.K. manufacturing based on a survey of companies climbed to 57.5 in April from 57.2 in March, a separate Bloomberg survey showed. The report will be released today in London.

RBA Meeting

Australia’s dollar advanced for a second day against the yen on speculation the Reserve Bank of Australia will today raise interest rates for a sixth time in seven meetings.

The RBA will boost the overnight rate target to 4.5 percent, according to 18 of 24 economists surveyed by Bloomberg.

“We are leaning toward a 25 basis point hike this afternoon given inflation is ticking up toward the high-end of the RBA’s band,” said Ian Fowler, senior corporate foreign exchange dealer at OzForex Ltd. in Sydney. “We may see Aussie continue to be supported and move higher against the yen.”

Benchmark interest rates of 4.25 percent in Australia and 2.50 percent in New Zealand compare with 0.1 percent in Japan, making the South Pacific nations’ assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits.