Yen Falls as Gains in Asian Stocks Encourage Demand for Yield

By Ron Harui

Sept. 3 (Bloomberg) -- The yen fell against the euro and dollar as speculation China’s government will adopt measures to boost the nation’s equities triggered gains in regional shares, boosting demand for higher-yielding assets.

Japan’s currency dropped versus all of its 16 major counterparts after Liu Xinhua, vice chairman of the China Securities Regulatory Commission, said regulators will promote a stable market. The euro traded near a one-week low against the British pound before a European Central Bank meeting where policy makers are expected to leave the benchmark interest rate at a record low.

“Rising stocks are positive for risk-taking appetite,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is a factor for selling the yen.”

The yen declined to 131.94 per euro as of 7:30 a.m. in London from 131.54 in New York yesterday. Japan’s currency slipped to 92.37 per dollar from 92.22.

The euro bought $1.4285 from $1.4264 yesterday. The 16- nation currency fell to 87.57 pence after sliding to 87.50 pence yesterday, the weakest level since Aug. 26.

The MSCI Asia Pacific Index of regional shares edged up 0.2 percent, rebounding from a 1.4 percent slide yesterday. China’s benchmark Shanghai Composite Index surged 4.6 percent, the most since March 4.

Liu’s comments, made at a financial forum in Beijing yesterday, were featured on today’s front pages of the China Securities Journal and the Shanghai Securities News, the nation’s biggest financial newspapers.

European Retail Sales

The euro may weaken for a second day against the pound on concern a European report will show that retail receipts fell in July from a year ago, providing more evidence for the ECB to keep interest rates low.

Retail sales in the 16-nation euro region fell 2.2 percent in July from a year earlier, after a 2.0 percent drop in June, according to a Bloomberg News survey of economists. The European Union’s statistics office will release the report in Luxembourg later today.

Gross domestic product in the euro area declined 0.1 percent in the second quarter, the statistics office said yesterday, confirming an initial estimate published on Aug. 13.

“The positive impact from the more robust second-quarter performance seen globally seems to be fading rapidly,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a research note yesterday. “European currencies are underperforming.”

The ECB will keep its main refinancing rate at a record low of 1 percent at its meeting today, according to all 58 analysts surveyed by Bloomberg News. The central bank won’t raise rates before the third quarter of 2010, another survey shows.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net