Dollar Falls Against Yen as Reports to Show Deepening Recession

By Stanley White and Ron Harui

Dec. 1 (Bloomberg) -- The dollar fell against the yen before U.S. reports this week that may show manufacturing contracted and employers cut jobs by the most since 2001 as the recession deepens.

The euro declined against the dollar and the yen as traders bet the European Central Bank will reduce borrowing costs this week in response to the recession. The Australian and New Zealand dollars weakened as economists forecast policy makers in both countries will lower interest rates this week as the economic outlook deteriorates.

“People may look more closely at the U.S. economy, so there’s some scope for dollar depreciation,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “Higher-yielding currencies are losing their appeal because the interest-rate differential isn’t working in their favor.”

The dollar traded at 95.30 yen as of 11:30 a.m. in Tokyo from 95.52 in New York on Nov. 28. It fell to 94.61 yen on Nov. 26, the lowest since Nov. 21. The euro bought $1.2661 from $1.2691 at the end of last week. The euro was quoted at 120.66 yen from 121.22 on Nov. 28. The U.S. currency may decline to 94.80 yen and trade at $1.2550 per euro today, Shimizu said.

The Australian dollar fell 1.2 percent to 64.76 U.S. cents from Nov. 28 in New York. The Aussie, as the currency is known, also weakened 1.4 percent to 61.72 yen. New Zealand’s dollar declined 1.2 percent to 54.21 U.S. cents and 1.43 percent to 51.67 yen.

Rate Cuts

The Reserve Bank of Australia will make a fourth straight reduction to its key rate tomorrow, cutting by 75 basis points to 4.5 percent, according to the median estimate of economists surveyed by Bloomberg News. New Zealand’s central bank will lower its cash rate by 150 basis points to 5 percent on Dec. 4, based on a separate Bloomberg survey. A basis point is 0.01 percentage point.

U.S. nonfarm payrolls shrank by 320,000 workers in November following a decline of 240,000 the previous month, according to a Bloomberg News survey before the Labor Department’s Dec. 5 report. The jobless rate may have jumped to 6.8 percent, the highest level since 1993, a separate Bloomberg survey showed.

The ISM may say manufacturing shrank in November for a fourth month, according to another Bloomberg survey. The Tempe, Arizona-based Institute releases the data at 10 a.m. in New York.

Fighting Recessions

The world’s largest economy contracted at a 0.5 percent pace in the third quarter and consumer spending fell at a 3.7 percent rate, the most since 1980, the government said last week. The global economy is grappling with recession as financial firms worldwide racked up $967 billion in losses on mortgage derivatives since the start of 2007, leading to a credit-market seizure and declines in company and personal spending.

The euro weakened for a fifth day versus the yen, its longest stretch since Oct. 6, on speculation the European Central Bank will lower rates this week to revive growth.

Europe’s inflation rate fell to 2.1 percent in November from 3.2 percent in October, a Nov. 28 report showed, giving policy makers more room to cut borrowing costs when they meet Dec. 4.

“European data continue to deteriorate at an increasingly rapid pace and the recent easing of inflation pressures means there is scope for a bold cut by the ECB,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “For euro-dollar, this suggests a visit to the recent lows of between $1.2300 and $1.2400 is likely.”

Producer Prices

Producer prices in Europe fell 0.3 percent in October from the previous month, after a 0.2 percent decline in September, according to a Bloomberg News survey of economists before the report tomorrow. Retail sales dropped 0.4 percent in October from the prior month, after a 0.2 percent decline in September, a separate Bloomberg survey shows. The report is due on Dec. 3.

Traders increased bets the ECB will cut its 3.25 percent benchmark rate. The implied yield on Euribor futures contracts expiring in June declined to 2.42 percent on Nov. 28 from 2.44 percent on Nov. 27.

The yen rose on speculation a recession in the global economy and a stock-market slide will spur Japanese investors to bring money held in overseas assets back home.

The MSCI Asia Pacific Index of regional shares dropped 1.2 percent today, while the Nikkei 225 Stock Average fell 2 percent.

Japanese reports last week showed companies plan the sharpest production cuts in 35 years and retail sales fell for a second month, adding to signs the recession in the world’s second-biggest economy is deepening.

“Japan is in recession and the yen is likely to continue to strengthen,” said Joseph Capurso, currency strategist at Commonwealth Bank of Australia in Sydney. “When the economic climate is poor, Japanese investors tend to repatriate capital during periods of risk aversion.”

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.