Yen Falls on Speculation Importers Are Selling Before Year-End

By Ron Harui and Stanley White

Dec. 2 (Bloomberg) -- The yen fell against the dollar, retreating from a five-week high, on speculation Japanese importers are buying foreign currencies to meet their year-end funding needs.

The yen also erased gains and declined versus the euro before the Bank of Japan holds an emergency meeting today to consider ways to help companies obtain funds after the world’s second-largest economy slipped into a recession. The Australian dollar dropped against the greenback and the yen as economists forecast the country’s central bank will cut interest rates today in response to a global economic slump.

“Japanese importers are likely to find these levels attractive to buy dollars to meet their year-end financing needs,” said Katsunori Kitakura, chief treasury dealer in Tokyo at Chuo Mitsui Trust & Banking Co., Japan’s seventh-largest publicly listed lender. “Even though the BOJ lowered rates, that still hasn’t reduced companies’ funding costs.”

The yen fell to 93.68 per dollar as of 10:48 a.m. in Tokyo from 93.19 late yesterday in New York. It earlier rose to 92.89, the highest level since Oct. 28. Japan’s currency declined to 118.38 versus the euro from 117.52, erasing a gain to 117.24, the strongest level since Nov. 21. The euro traded at $1.2634 versus $1.2611.

Against the yen, the British pound rose 0.9 percent to 139.90 yen, the Norwegian krone advanced 0.8 percent to 13.1803 and the Canadian dollar gained 0.7 percent to 75.20.

Australian Rates

Australia’s dollar fell 0.3 percent to 63.86 U.S. cents and 0.4 percent to 59.85 yen from late in Asia yesterday as economists forecast the Reserve Bank of Australia will cut rates by 75 basis points from 5.25 percent today. The monetary policy decision is due at 2:30 p.m. in Sydney. A basis point is 0.01 percentage point.

Policy makers will also lower interest rates this week to 5 percent from 6.5 percent in New Zealand, to 2 percent from 3 percent in the U.K. and to 2.75 percent from 3.25 percent in the euro region as central banks move to stem the economic slowdown, according to separate surveys carried out by Bloomberg.

Japan’s currency earlier gained versus the dollar on speculation declines in global manufacturing and stocks will prompt investors to buy back the yen at the expense of higher- yielding assets.

The Nikkei 225 Stock Average slid 4.6 percent and the MSCI Asia-Pacific Index of regional shares slumped 3.4 percent after the Standard & Poor’s 500 Index tumbled 8.9 percent yesterday.

Risk Aversion

“Sliding global equities are likely to increase risk aversion among investors, putting upward pressure on the yen,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former Bank of Japan currency trader. “We may see the yen re-test this year’s high of 90.93 against the dollar in the near term.”

The yen touched 90.93 to the U.S. currency on Oct. 24, the highest level since August 1995.

The Institute for Supply Management said yesterday its U.S. factory index fell to 36.2 in November, the lowest level since 1982. A reading of 50 is the dividing line between expansion and contraction. Similar gauges for the euro zone and the U.K. dropped to records.

The National Bureau of Economic Research also yesterday said the U.S. economy entered a recession in December 2007, the first since 2001.

Japan’s target rate of 0.3 percent compares with 3.25 percent in the euro zone and 5.25 percent in Australia. In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.

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