Yen Declines to 5-Month Low on Speculation Recession Bottoming

By Yasuhiko Seki and Ron Harui

April 6 (Bloomberg) -- The yen declined to a five-month low against the dollar and the euro after Japanese stocks extended a worldwide equity rally on speculation that the worst of the global financial crisis may be over soon.

The yen fell against all of the 16 most-actively traded currencies and slid against New Zealand’s dollar to the weakest since November after Federal Reserve Chairman Ben S. Bernanke said last week programs to unfreeze credit markets are working, damping demand for Japan’s currency as a refuge. The yen also dropped on expectations the Bank of Japan will keep interest rates near zero percent at the end of a policy meeting tomorrow.

“Expectations are emerging that a global recession and financial crisis may be coming closer to a turning point,” said Akio Yoshino, chief economist in Tokyo at Societe Generale (Japan) Co., a unit of the French asset management firm that supervises the equivalent of $338 billion.

The yen traded at 136.22 per euro at 9:49 a.m. in Tokyo, from 135.26 late on April 3 in New York. It earlier touched 136.44, the lowest since Oct. 20. Japan’s currency touched 100.74 against the U.S. dollar, the weakest since Oct. 21, from 100.31 last week. The euro advanced for a third day against the dollar, climbing to $1.3533 from $1.3486.

New Zealand’s dollar advanced to 59.74 yen, the highest since Nov. 10, from 58.76.

Demand for the yen also weakened after North Korea launched a rocket yesterday over the Sea of Japan.

Geopolitical Risk

“Geopolitical risk” may add to the yen’s decline, said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe General SA, France’s third-largest bank.

The North Korean rocket flew over Japan on a trajectory into the Pacific Ocean yesterday, according to a statement from the Japanese Prime Minister’s Office. U.S. President Barack Obama said yesterday the firing of the Taepodong 2 missile was “provocative” and a “clear violation” of a United Nations Security Council resolution.

Demand for the euro increased on speculation European Central Bank Executive Board Member Lorenzo Bini Smaghi may signal in a speech today that the bank will slow the pace of rate cuts after lowering them last week.

The yield advantage of two-year German bunds over Japanese government bonds increased to 1.10 percentage point on April 3, the most in two months, boosting the allure of assets in the 16- nation region. The ECB on April 2 cut its benchmark rate by a quarter-percentage point to 1.25 percent, compared with a half- point reduction expected in a Bloomberg survey.

ECB Rates

“Investors seem to be focusing on rate differentials, so the fact that the ECB lowered rates by only 25 basis points is positive for the euro,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second- largest lender. “Investors also are becoming more inclined to take on risk, which is leading to euro appreciation.”

The euro may strengthen to $1.3600 and 136.80 yen today, Muramatsu said. Benchmark rates are 0.1 percent in Japan, 0.5 percent in the U.K. and between zero and 0.25 percent in the U.S.

ECB President Jean-Claude Trichet said on April 3 that the central bank’s target lending rate “could in a very measured way go down” from the 1.25 percent level.

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