Yen Gains as Stocks Fall on Concern Bank Bailout Plan May Fail

By Yasuhiko Seki and Ron Harui

Feb. 12 (Bloomberg) -- The yen rose against the dollar and the euro as stocks declined on concern U.S. Treasury Secretary Timothy Geithner will fail to revive bank lending, boosting demand for Japan’s currency as a haven.

The euro weakened for a third day against the yen on speculation industrial output in the 16-nation region slid the most in almost 23 years, supporting the case for the central bank to cut interest rates. The Australia and New Zealand dollars advanced after a better-than-expected job report eased concern the Reserve Bank of Australia will keep lowering borrowing costs.

“The latest financial rescue plan lacked details, raising questions about its effectiveness,” said Masashi Hashimoto, a Tokyo-based currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group. “This is positive for safe havens such as the yen.”

The dollar declined to $1.2911 versus the euro as of 11:56 a.m. in Tokyo from $1.2906 late in New York yesterday. The yen climbed to 116.28 per euro from 116.66. The dollar was at 90.07 yen from 90.40.

Nikkei 225 Stock Average declined for a third day, losing 2.3 percent and the MSCI Asia-Pacific Index of regional stocks dropped 1.1 percent.

“The stock market is a barometer of risk aversion, with losses serving as a positive lead for the yen,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp., Japan’s largest fixed-line telephone company.

Stimulus Package

Geithner, speaking yesterday before the Senate Budget Committee, defended his strategy of taking time to work out the details of his plan to shore up the financial industry.

“I completely understand the desire for details and commitments,” he said. “But we’re going to do this carefully, consult carefully, so we don’t put ourselves in the position again” where there are “quick departures and changes in strategy.”

Gains in the yen may be limited on speculation the Congress will send the economic stimulus package to President Barack Obama by the end of this week.

U.S. lawmakers are cutting a proposed economic stimulus package to $789 billion and may be able to forward it to Obama by the end of this week, Senate Finance Committee Chairman Max Baucus said yesterday.

The Australian and New Zealand dollars rose against the U.S. currency after a report showed Australian employers unexpectedly added workers in January, a sign that the economy may avoid a recession.

Jobs Data

The number of people in employed rose 1,200 from December, the statistics bureau said in Sydney. The median forecast in a Bloomberg survey was for a drop of 18,000. The result eases pressure on central bank Governor Glenn Stevens to add to four percentage points of reductions in the benchmark interest rate, which was cut last week to a 45-year low of 3.25 percent.

“Active buying of the Australian dollar following the unexpectedly strong data dealt a blow to the safe-haven currencies,” NTT’s Kudo said. “Still, it may be a bit risky to bet on a sustained recovery of the Australian dollar just on a single report.”

Industrial output in the European Union may decline 9.5 percent in December from a year earlier, the most since Bloomberg began compiling the data in January 1986, according to a separate survey of economists. The region’s statistics office releases its industrial production report at 11 a.m. in Luxembourg today.

ECB Rate Cut

“The report may heighten expectations for an ECB rate reduction,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The euro is likely to weaken further” to $1.2830 and 115.90 yen today, he said.

Investors added to bets the ECB will lower borrowing costs from 2 percent at its March 5 meeting. The yield on the three- month Euribor interest rate futures contract due in March fell to 1.715 percent yesterday from 1.745 percent on Feb. 10.

The Group of Seven industrialized nations will meet this weekend to discuss measures to stabilize the financial system. When G-7 finance ministers and central bankers prepare to gather in Rome on Feb. 14, finance chiefs will seek assurances from one another that the global recession won’t spark a wave of protectionism that deepens the slump.

Makoto Utsumi, a former top currency official at Japan’s Finance Ministry, said last week the G-7 may reinstate a call for China to increase the flexibility of its currency. “The yuan may be singled out,” he said.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net