Yen Rises to One-Month High Against Euro on Recession Concern

By Bo Nielsen and Yoshiaki Nohara

June 23 (Bloomberg) -- The yen rose to a one-month high against the euro on concern the global recession will persist, stoking demand for the relative safety of the Japanese currency.

The yen strengthened versus the dollar, the Swiss franc and the pound before a U.S. report tomorrow that economists say will show durable-goods orders declined in May. U.S. wealth may take 15 years to rebound, Edmund Phelps, a professor at Columbia University and winner of the 2006 Nobel Prize for economics, said in a Bloomberg Television interview yesterday. The World Bank said yesterday the global recession will be deeper than it earlier projected.

“The picture is getting more realistic in terms of the timing and the speed of the recovery,” said Ulrich Leuchtmann, head of currency research in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “Rising risk aversion triggered a new flight to safe havens like the yen.”

The yen appreciated to 132.18 per euro as of 9:10 a.m. in London, from 132.93 yesterday in New York. It earlier reached 131.43, the strongest level since May 22. The yen rose to 95.19 per dollar, from 95.87, after climbing to 94.99, the highest level since June 1. The dollar traded at $1.3891 per euro, from $1.3865.

The Nikkei 225 Stock Average slid 2.8 percent and the MSCI Asia Pacific Index of regional shares dropped 2.4 percent. European equities slipped. The World Bank yesterday predicted the global economy will contract 2.9 percent this year, compared with a previous forecast for a 1.7 percent decline.

“Worries that the green shoots of the global recovery are unlikely to be sustainable may make investors risk averse,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage. “This will probably lead to yen strength.”

Durable Goods

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive because it leaves the nation less reliant on overseas lenders.

U.S. durable-goods orders fell 0.9 percent in May after a 1.9 percent increase in April, a Bloomberg survey showed before the Commerce Department report tomorrow.

Commodity currencies weakened as raw materials prices fell. The Australian dollar declined for a second day against the greenback and the yen after the price of gold, the nation’s third most-valuable commodity export, declined. Norway’s krone weakened as crude oil slipped for a third day.

‘They Will Retreat’

“Commodity currencies, the euro and other European currencies, which benefited from the recent risk rally, will adjust,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo. “That means they will retreat against the yen.”

Australia’s dollar weakened 1.4 percent to 74.27 yen and Norway’s krone declined 0.2 percent to 9.1013 per euro.

Korea’s won declined for a fifth day versus the dollar as overseas investors cut their holdings of the nation’s shares. North Korea will conduct military firing exercises off its east coast between June 25 and July 10, Jiji Press reported, citing an e-mail sent to Japan’s Coast Guard.

“Offshore players resumed buying dollars in the face of escalating tensions relating to the North,” said Roh Sang Chil, a currency dealer in Seoul at Kookmin Bank, the nation’s biggest lender. “Those who bought the won around 1,250 turned to selling on a global strengthening of the dollar.”

The euro fell for a second day against the yen on speculation European Central Bank officials will today signal they may keep borrowing costs low to counter the 16-nation region’s recession.

ECB’s Trichet

ECB President Jean-Claude Trichet said yesterday there’s still a risk that renewed financial turmoil may hamper an economic recovery. Governing Council member Ewald Nowotny said in an interview on June 19 the central bank will probably hold rates steady for at least the rest of the year.

“It’s too early to consider exit strategies” for the ECB, said Akifumi Uchida, Tokyo-based deputy general manager of the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth- largest bank. “There’s also lingering financial uncertainty in the euro-zone. It’s a negative for the euro.”

Fellow ECB member Axel Weber will speak in Munich today. The ECB kept its benchmark rate at a record low of 1 percent this month. The ECB will offer to lend banks as much money as they want for 12 months in a new auction today to help credit start flowing again.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net;