Yen Falls as Stock Gains, Bank Bailouts Increase Risk Appetite

By Stanley White

Jan. 16 (Bloomberg) -- The yen fell for a second day against the euro on speculation stock gains and measures to stabilize the U.S. financial system will encourage investors to buy higher-yielding assets funded in Japan’s currency.

The yen also weakened versus the Australian and New Zealand dollars and South Africa’s rand after the U.S. Senate voted to release the second half of a $700 billion financial rescue package to U.S. President-elect Barack Obama. Bank of America Corp., the biggest U.S. bank by assets, is nearing an agreement on federal aid that may include up to $20 billion in new capital, easing concern losses at financial institutions will spread.

“A lot of people, myself included, are trying to buy the euro against the yen,” said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., the fourth- largest U.K. lender. “Stocks are on a firm footing, and that increases appetite for risk.”

The yen fell to 118.93 per euro as of 10:37 a.m. in Tokyo from 117.87 late yesterday in New York. The dollar rose to 90.17 yen from 89.84 yen. The euro bought $1.3187 from $1.3115. The yen may depreciate to 121.30 versus the euro today, Ogawa said.

Against the Australian dollar, the yen slipped to 60.43 from 59.55 late yesterday in New York. Japan’s currency also declined to 49.01 versus the New Zealand dollar from 48.28. The yen weakened to 9.0438 per South African rand from 8.9936. Benchmark interest rates are 4.25 percent in Australia, 5 percent in New Zealand, 11.5 percent in South Africa and 0.1 percent in Japan.

Stock Gains

The MSCI Asia-Pacific Index of regional shares rose 1.3 percent and the Nikkei 225 Stock Average gained 1.6 percent and Standard & Poor’s 500 Index futures advanced 0.9 percent.

The U.S. government will use as much as $100 billion to ease the housing crisis and stabilize the financial system, Lawrence Summers, economic adviser for Obama, said yesterday. The president-elect takes office on Jan. 20.

Bank of America may also get a $120 billion “backstop” to help it cope with troubled assets after its purchase of Merrill Lynch & Co. last year, a person familiar with the matter said.

BOA moved forward its quarterly earnings report to today. The world’s largest banks have posted losses and writedowns of about $1 trillion since the start of 2007 on mortgage-related securities, according to data compiled by Bloomberg.

“We have to take the Bank of America news positively, because the alternative of not helping the financial system would be disastrous for sentiment,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “There are high hopes for Obama’s administration, which may support celebratory buying of the dollar.”

The dollar may rise to $1.3095 per euro today, he said.

ECB Rates

The euro fell 2.1 percent against the dollar this week, headed for a third weekly decline against the dollar, its longest losing streak in almost two months, after European Central Bank President Jean-Claude Trichet signaled interest rates may fall further.

“We didn’t say that it was now the limit and we wouldn’t move any more,” Trichet told reporters in Frankfurt yesterday after the central bank lowered its main refinancing rate by a half-percentage point to 2 percent, matching a record low.

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