Yen Falls on Speculation G-7 to Say Its Recent Gains Too Rapid

By Stanley White and Ye Xie

Oct. 9 (Bloomberg) -- The yen fell against the dollar for the first day in a week on speculation Group-of-Seven ministers will warn against its rapid gains at a summit starting tomorrow.

The yen also declined against the euro, the Australian dollar and the New Zealand dollar, three currencies it has surged against this month as traders pared so-called carry-trade holdings of higher-yielding assets. The euro weakened against the dollar after central banks around the world lowered interest rates yesterday to counter the worst financial crisis since the Great Depression.

``People will be somewhat reluctant to buy the yen from here,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly traded bank. ``The yen's gains against many currencies are starting to breach the comfort zone, so the G-7 may want to stabilize the currency.''

The yen fell to 99.77 per dollar as of 8:34 a.m. in Tokyo from 99.14 late yesterday in Tokyo, trimming its gain so far this month to a 6.4 percent. Against the euro, Japan's currency fell to 135.87 from 135.39. The euro bought $1.3621 from $1.3654. The yen may decline to 100.20 per dollar today, Shimizu said.

Against the Australian dollar, the yen declined to 66.68 from 65.52 late yesterday in Asia. It also fell to 59.83 per New Zealand dollar from 59.07.

Yen's Surge

The yen surged 27 percent versus the Australian dollar, 19 percent against New Zealand's currency and 10 percent against the euro this month as a global stock market rout and the seizure of credit markets in the wake of the U.S. subprime- mortgage collapse spared fears of a global recession.

In carry trades investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. Benchmark rates are 0.5 percent in Japan.

The Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 percent yesterday, while the European Central Bank and counterparts from the U.K., Canada, Sweden and Switzerland also reduced rates. China's central bank lowered its key one-year lending rate.

The International Monetary Fund cut its growth forecast for the world's advanced economies next year to the slowest pace since 1982. Industrial economies will grow 0.5 percent in 2009, down from 1.5 percent this year, the Washington-based IMF said in its World Economic Outlook yesterday.

ECB President Jean-Claude Trichet said in an interview yesterday on Bloomberg Television that the half-percentage point reduction in the main refinancing rate to 3.75 percent is ``no particular signal'' of whether more cuts are needed.

Canada's target lending rate was cut to 2.5 percent; the Bank of England's rate dropped to 4.5 percent; and Sweden's declined to 4.25 percent. China lowered interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.

Finance ministers and central bankers from the G7 nations will meet tomorrow in Washington to discuss the financial crisis. The G-7 comprises Canada, France, Germany, Italy, Japan, the U.K. and the U.S.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net.