Yen Falls as Orders for U.S. Durable Goods Unexpectedly Gained

By Ye Xie and Candice Zachariahs

July 25 (Bloomberg) -- The yen weakened against all of the other major currencies as an unexpected increase in orders for U.S. durable goods last month bolstered speculation that investors will buy higher-yielding assets funded in Japan.

The dollar extended its gain versus the yen and erased its loss against the euro as reports showed sales of new homes in the U.S. fell in June less than forecast and consumer confidence unexpectedly increased this month.

``Risk appetite is on the rise,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets. ``The yen has further room to fall.''

Japan's currency fell 0.4 percent to 107.79 versus the dollar at 10:09 a.m. in New York, from 107.33 yesterday. It may drop to 115 against the dollar in the next couple of months, Woolfolk said. The yen dropped 0.4 percent to 168.99 per euro, from 168.28, after reaching a record low of 169.96 on July 23. The dollar traded at $1.5676 per euro, compared with $1.5677.

India's rupee and the Philippine peso led a weekly advance against the dollar among Asian currencies on speculation oil prices near the lowest in seven weeks will reduce demand for dollars from importers. The rupee gained 1.2 percent this week to 42.265 per dollar, while the peso rose 1 percent from last week to 43.945.

The yen depreciated 1.7 percent to 14.19 versus South Africa's rand and 0.9 percent to 68.55 against the Brazilian real today as the report on durable goods encouraged carry trades in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 12 percent in South Africa and 13 percent in Brazil.

Dollar Versus Euro

The U.S. currency was headed for a 1 percent increase against the euro this week, the biggest since mid-June, and advanced 0.7 percent versus the yen. Japan's currency has decreased 0.3 percent against the euro.

``We are bullish on the dollar,'' said Steven Englander, a currency strategist at Lehman Brothers Holdings Inc. in New York. ``The U.S. economy continues to surprise on the upside, while the rest of the world surprises on the downside.''

The Commerce Department reported that orders for durable goods, products that last several years, rose 0.8 percent in June. The median forecast of 78 economists surveyed by Bloomberg News was for a decrease of 0.3 percent. There was a revised 0.1 percent advance the previous month.

Housing Data

Purchases of new homes decreased 0.6 percent to a 530,000 pace in June, from an upwardly revised 533,000 in the prior month, the Commerce Department said.

The Reuters/University of Michigan final index of consumer sentiment increased to 61.2 this month from 56.4 in June. The measure averaged 85.6 in 2007 and is up from a preliminary reading of 56.6 in early July.

European Central Bank policy makers still have scope to raise interest rates, according to council member Klaus Liebscher. The Frankfurt-based central bank increased its main refinancing rate to 4.25 percent on July 3, citing the need to control inflation.

``We haven't exhausted our room for maneuver,'' said Liebscher, who also heads Austria's central bank, in an interview in his Vienna office yesterday. ``I'm not that surprised'' by the latest economic data, he added. ``We expected a weaker second and maybe third quarter.''

The Ifo institute said yesterday that its German business climate index, based on a survey of 7,000 executives, dropped to 97.5 this month from 101.2 in June. The 3.7-point decrease was the biggest since the Sept. 11, 2001, terrorist attacks.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.