Yen Falls to Lowest Since November on Concern Economy Worsening

By Ron Harui and Theresa Barraclough

Feb. 26 (Bloomberg) -- The yen fell to a three-month low against the dollar and weakened versus the euro before government reports tomorrow that may show rising unemployment and falling consumer prices in Japan.

The Japanese currency is headed for its worst month against the dollar in 13 years and the poorest versus the euro since 2000 as the deepening recession reduces the yen’s appeal. The euro is poised for a second monthly loss against the dollar on concern financial turmoil in eastern Europe will worsen, backing the case for the region’s central bank to lower interest rates.

“The fundamentals are for the downside to the yen so weaker economic data tomorrow will support the weakening trend,” said Satoru Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse Group AG, Switzerland’s second-biggest bank. The yen may decline to 100 per dollar by the end of March, he said.

The yen fell to 97.94 against the dollar as of 7:47 a.m. in London from 97.39 yen late in New York yesterday. It reached 97.97 today, the weakest level since Nov. 14. It dropped to 124.51 per euro from 123.92 yesterday, when it touched 125.15, the lowest since Jan. 9.

The dollar traded at $1.2713 per euro from $1.2723 in New York yesterday. It was at $1.4186 versus the British pound from $1.4201, and traded at 1.1710 Swiss francs from 1.1699.

The ICE’s Dollar Index, which tracks the U.S. currency versus the euro, yen, pound, Canadian dollar, krona and Swiss franc, traded at 87.983 from 87.906. It touched 88.254 on Feb. 18, the strongest since a 2 1/2-year high reached on Nov. 21.

‘Excessive’

Recent fluctuations in the yen have been a “a bit excessive” and the degree of fluctuations in currencies, rather than their levels, warrant close attention, Bank of Japan board member Tadao Noda said today.

“It’s important for companies and households that currencies generally move in a stable manner,” Noda told reporters in Naha, Okinawa.

Japan’s currency is heading for a fifth weekly loss against the greenback after a Cabinet Office report last week showed the economy shrank the most since the 1974 oil shock. The yen reached a 13-year high against the greenback on Jan. 21 after surging 23 percent last year.

Japan’s consumer prices, excluding fresh food, fell 0.1 percent in January from a year earlier, according to a Bloomberg News survey of economists. The unemployment rate probably rose to 4.6 percent last month, the highest level since February 2005, a separate survey showed.

The trade deficit widened to 952.6 billion yen ($9.8 billion) in January from a revised 322.3 billion yen in December, the Finance Ministry said yesterday in Tokyo.

‘Following Suit’

“With Japan’s trade data deteriorating sharply now, the Japanese yen is finally following suit,” Mansoor Mohi-Uddin, chief currency strategist at UBS AG, the world’s second-largest foreign-exchange trader, wrote in a note to clients yesterday. “Japan’s currency potentially has a lot further to slide if investors stop perceiving the yen as a safe haven and trade the currency instead on Japan’s worsening export numbers.”

During Japan’s last episode of deflation that began a decade ago, bankruptcies surged and the jobless rate climbed to a postwar high. Weak consumer spending prompted companies to lower prices, undermining profits and forcing them to reduce wages. Deflation is a sustained decline in prices.

Europe’s single currency also headed for a third weekly decline on speculation European Central Bank President Jean- Claude Trichet will today express increased concern about the euro-region’s financial system and signal an interest-rate reduction in March.

Ukraine, Latvia

Standard & Poor’s yesterday cut Ukraine’s credit rating by two levels after it downgraded Latvia’s debt to junk on Feb. 24. Banks from Austria, Italy, France, Belgium, Germany and Sweden account for 84 percent of the bank loans made in central and eastern Europe.

“The financial crisis in eastern Europe seems to have just begun and will probably be difficult to resolve,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “This is likely to lead to selling of the euro,” which may decline to $1.2670 and 123.50 yen today, he said.

Trichet will speak on European competitiveness at 1 p.m. in Dublin. On Feb. 23, he said the financial system was under “severe strain,” hampering an economic recovery.

Investors maintained bets the ECB will lower its 2 percent benchmark rate at its March 5 meeting. The yield on the three- month Euribor interest-rate futures contract due in March was at 1.685 percent from 1.675 percent yesterday.

Resistance Level

The dollar’s advance against the yen may be tempered as the currency approaches so-called resistance at 98.90, according to Bank of America Securities-Merrill Lynch Japan.

The 98.90 yen level is a 50 percent retracement of the dollar’s decline from the August high of 110.66 yen to the January low of 87.13 yen, said Tomoko Fujii, a rates and currency strategist at the recently merged research division of Merrill Lynch and Bank of America Corp. in Tokyo, referring to a series of numbers known as the Fibonacci sequence. Resistance is a level where sell orders may be clustered.

The “strong” resistance levels will be “98.90, above which there is a psychologically important level of 100.00,” Fujii wrote in a report yesterday.

To contact the reporters on this story: Ron Harui in Tokyo at rharui@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.