Yen Heads for Sixth Weekly Loss Versus Euro as Stocks Advance

By Yasuhiko Seki and Ron Harui

March 27 (Bloomberg) -- The yen headed for a sixth weekly decline against the euro as stocks rallied worldwide on optimism the worst of the global economic slump is over, sapping demand for the currency as a refuge.

The Japanese currency headed for its worst month against the euro since December 2000 as a government report today showed retail sales fell the most in seven years. The Australian and New Zealand dollars strengthened versus the greenback, heading for their biggest monthly gains in more than 20 years, as a gain in commodity prices increased demand for the two nations’ assets.

“The anxiety about credit risks is now easing thanks to aggressive policy action in the U.S.,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of the French asset management firm that supervises the equivalent of $338 billion. “Prospects for stock markets have improved, allowing investors to reinvest in higher-yielding currencies, which were sold in times of crisis.”

The yen traded at 133.57 against the euro as of 10:01 a.m. in Tokyo from 133.52 late yesterday in New York and 130.29 a week ago. Japan’s currency was at 98.46 versus the dollar from 98.71 yesterday. The euro traded at $1.3559 from $1.3526.

New Zealand’s dollar rose to 57.81 U.S. cents from 57.55 cents yesterday, and Australia’s currency advanced to 70.25 U.S. cents from 70.16 cents.

The Nikkei 225 Stock Average headed for a third weekly gain, adding 1.6 percent today, and the MSCI Asia Pacific Index of regional shares gained 1.4 percent. The Standard & Poor’s 500 Index advanced 2.3 percent yesterday.

Japan’s Economy

The yen has also lost its appeal as concern intensified about the deterioration of the world’s second-biggest economy.

“Economic conditions are poor and the political situation is shaky,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “These hurt confidence in the yen.”

Japanese retail sales fell 5.8 percent in February from a year earlier, after declining 2.4 percent in January, the Trade Ministry said today in Tokyo. Consumer spending accounts for nearly 55 percent of Japan’s gross domestic product. Consumer prices excluding fresh food were unchanged last month from a year earlier, a separate government report today.

The yen fell 7.5 percent this month against the euro, heading for its biggest loss since a 10.8 percent decline in December 2000.

Ministers Resign

Senior Vice Finance Minister Koichi Hirata resigned yesterday after he sold 616 million yen ($6.2 million) of shares this month. Japan adopted a code of conduct in 2001 that advises government ministers not to directly trade securities.

Finance Minister Shoichi Nakagawa quit in February amid accusations he was drunk at a press conference, raising questions about Prime Minister Aso Taro’s leadership of the ruling Liberal Democratic Party before elections that must be called by September.

The yen headed for its first quarterly loss against the dollar since June, dropping 8.1 percent as Japan’s export- oriented economy shrank an annualized 12 percent last quarter, the biggest contraction since 1974.

Demand for the yen may be boosted on speculation Japanese companies and investors will repatriate earnings generated outside the nation before the fiscal year ends on March 31.

“It’s quarterly and fiscal year-end, so there’s talk that Japanese life insurers and exporters will need to buy the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is a last-minute kind of thing.”

Japan’s currency was the biggest gainer in 2008 among the 171 currencies tracked by Bloomberg as the global financial meltdown led investors to buy assets perceived as safe.

Aussie and Kiwi

The Australian and New Zealand dollars also rose on speculation the central banks are near the end of reducing interest rates.

Australia’s dollar has appreciated 10 percent this month, the most since February 1973. New Zealand’s currency has gained 15 percent against the greenback, its largest advance since August 1985.

Traders reduced to 25 basis points their expectations of the next cuts by policy makers in Australia and New Zealand, according to Credit Suisse Group AG indexes. Benchmark rates are 3.25 percent in Australia and 3 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher- yielding assets. The risk in such trades is that currency market moves will erase profits.

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