Dollar Falls Toward One-Week Low Versus Yen on Recession Risk

By Stanley White

Oct. 20 (Bloomberg) -- The dollar fell toward the lowest in a week against the yen on speculation a U.S. housing slump and a seizure in credit markets will tip the world's largest economy into recession.

The dollar also slid for the first time in four days versus the euro on concern Federal Reserve Chairman Ben S. Bernanke will forecast a prolonged downturn when he speaks today. The U.S. economic outlook for the next two quarters worsened in September as rising unemployment encouraged consumers to spend less, data may also show today. The South Korean won rose the most in a week after the government guaranteed $100 billion of lenders' foreign-currency debts to rescue the nation's financial system.

``Pessimistic comments on the economy could knock the dollar lower,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``There's a good chance the U.S. is in a recession.''

The dollar declined to 101.55 yen at 9:34 a.m. in Tokyo from 101.69 yen late in New York on Oct. 17. It fell to 99.27 yen on Oct. 16, the lowest since Oct. 10. Against the euro, the dollar weakened to $1.3444 from $1.3410. The euro bought 136.44 yen from 136.21 yen. The dollar may fall to 101 yen today, Ishikawa said.

The South Korean won rose 2.1 percent from the end of last week to 1,307 per dollar. The Bank of Korea said yesterday it will provide $30 billion in U.S. dollars to banks to increase their access to funding. The won tumbled last week by the most since an International Monetary Fund bailout in 1997.

Bernanke Testimony

Bernanke will testify at the House Budget Committee on the economic outlook and financial markets at 10 a.m. in Washington today. A rebound in U.S. growth won't happen right away as the government tries to unfreeze credit markets roiled by losses on mortgage derivatives, he said on Oct. 15.

Economists surveyed by Bloomberg in the first week of October said the economy contracted at a 0.2 percent annual pace in the three months through September and will shrink at a 0.8 percent rate in the final quarter of the year. Declines in consumer spending will tip the economy into a recession, the survey showed.

The U.S. index of leading indicators fell 0.1 percent last month, according to the median estimate in a separate Bloomberg survey before the Conference Board report at 10 a.m. New York time. The index, a gauge of the economy's direction in the next three to six months, has posted only two monthly gains this year.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.