Yen Rises to Two-Week High as Japan’s Growth Misses Estimates

 The yen rose to the highest in more than two weeks against the euro after Japan’s economic growth missed estimates and U.S. regulators closed five lenders, boosting demand for safe-haven assets.

The Japanese currency climbed the most against the New Zealand and Australian dollars as Asian stocks extended a global decline, prompting investors to reduce holdings of higher- yielding securities. The U.S. dollar gained for a second day versus the pound after a report showed British home sellers lowered asking prices by the most in eight months, adding to signs a recovery in the global economy may be slow.

“The yen is being bought as falling stocks increase risk aversion,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. “Stocks are in a downtrend as the economic outlook remains iffy. The euro will likely continue to drop against the yen.”

Japan’s currency rose to 133.55 per euro as of 7:40 a.m. in London from 134.84 in New York on Aug. 14, after earlier gaining to 133.46, the highest since July 30. The yen advanced to 94.50 per dollar from 94.94, and touched the highest since Aug. 4.

The yen climbed 2 percent to 77.54 versus Australia’s dollar and 1.8 percent to 63.24 against New Zealand’s currency.

The euro dropped to $1.4133 from $1.4203. It advanced to 86.26 British pence from 85.84 pence, while the pound fell to $1.6384 from $1.6543. The yen may advance to 130 per euro by the end of September, Fukaya said.

Asian Stocks Fall

Japan’s currency advanced against all 16 major counterparts. The nation’s gross domestic product expanded an annualized 3.7 percent in the second quarter, following an 11.7 percent decline in the three months ended March 31, the Cabinet Office reported in Tokyo today. That compared with a 3.9 percent rise forecast by analysts surveyed by Bloomberg News.

The MSCI Asia Pacific Index of regional shares declined 3 percent after theStandard & Poor’s 500 Index fell 0.9 percent on Aug. 14. The benchmark interest rate is 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations’ assets attractive to investors seeking higher returns.

The yen also rose on speculation the worst of the U.S. financial crisis isn’t over after regulators last week closed Colonial BancGroup Inc.’s banking operations and shut two companies in Arizona, one in Las Vegas and one in Pittsburgh. That brings the tally of failed banks this year to 77.

Credit Losses

The collapse of Montgomery, Alabama-based Colonial followed a Florida expansion that left the lender with more than $1.7 billion in soured real estate loans. Branches and deposits of Colonial Bank were turned over to BB&T Corp. in a deal brokered by the Federal Deposit Insurance Corp., the regulator said in a statement on Aug. 14.

“This news may revive worries over the financial health of regional banks in the U.S.,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Risk aversion would likely increase, causing buying of the yen.”

More than 100 of the world’s biggest banks, insurers and securities firms have incurred $1.60 trillion in asset writedowns and credit losses since the beginning of 2007, according to data compiled by Bloomberg.

Germany’s ZEW

The pound declined after Rightmove Plc, the owner of the U.K.’s biggest residential property Web site, said in a statement today the average cost of a U.K. home slipped 2.2 percent to 222,762 pounds ($367,808) after gaining 0.6 percent in July. That was the biggest drop since December.

“There are fears that the markets are overestimating the strength of the global economic recovery,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “We suspect some easing in risk appetite will help support safe-haven currencies like the yen and the dollar.”

Bank of England Governor Mervyn King said on Aug. 12 the world remains in “deep recession” and that banks may need to raise more capital to rebuild their balance sheets. Policy makers this month voted to add 50 billion pounds of newly printed money to a bond-buying program to cement Britain’s recovery from the worst recession in a generation.

Losses in the euro may be curbed amid speculation a German report tomorrow will show investor confidence rose, backing the case for the European Central Bank to keep interest rates steady.

Euro ‘Easy to Buy’

ECB council member Axel Weber said the German economy may shrink at a slower pace this year than the 6 percent the Bundesbank is forecasting, Sueddeutsche Zeitung reported yesterday, citing an interview. The ECB has cut its benchmark rate to 1 percent and began buying as much as 60 billion euros ($84.9 billion) of covered bonds to stimulate the economy.

“Improving sentiment in Germany would be a plus for the European economy,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Interest rates may stay relatively high, making the euro easy to buy.”

The ZEW Center for European Economic Research in Mannheim will say its index of investor and analyst expectations, which aims to predict economic developments six months ahead, rose to 45.0 in August from 39.5 in July, a Bloomberg News survey of economists showed.