Yen Falls as Asian Stocks Rally, Reports May Show China Growth

Tokyo - The yen fell for a sixth day against the euro as gains in Asian stocks and reports forecast to show improving Chinese industrial production and exports damped demand for Japan’s currency as a refuge.

The dollar traded near the lowest level since December against the euro on speculation two Federal Reserve officials will signal they plan to keep borrowing costs near zero, boosting demand for higher-yielding assets. The New Zealand dollar rose toward a one-year high against the U.S. currency after the South Pacific nation’s central bank indicated it was less likely to cut interest rates from a record low.

“The rally in stocks and China’s data are proving a floor for risk appetite for the short term, weighing down on the yen,” said Satoshi Okagawa, head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “People are paying close attention to China.”

The yen fell to 134.34 per euro as of 7:12 a.m. in London from 133.99 in New York yesterday, when it touched 134.41 yen, the lowest since Aug. 28. The dollar traded at $1.4579 per euro from $1.4557, after sinking to $1.4601 yesterday, the weakest level since Dec. 18.

Japan’s currency was at 92.15 per dollar from 92.04 after hitting 91.61 yesterday, the highest since Feb. 17. New Zealand’s dollar gained to 69.84 U.S. cents from 69.59. It rose to 70.08 cents yesterday, the strongest since Aug. 29, 2008.

The Australian dollar fell for the first time this week against the greenback after employers cut a greater-than- estimated 27,100 jobs last month, easing pressure on the central bank to raise interest rates. The currency fell 0.2 percent to 86.09 U.S. cents.

China Data

The MSCI Asia Pacific Index of regional shares gained 1.5 percent as profit from China Yurun Food Group and a higher forecast from Texas Instruments Inc. fueled confidence the global economy is recovering. The Nikkei 225 Stock Average advanced 2 percent, extending a global share rally that took theStandard & Poor’s 500 Index to an 11-month high yesterday.

The yen weakened against 15 of its 16 major counterparts as economists surveyed by Bloomberg News forecast China’s August industrial production gained 11.8 percent from a year earlier. The Beijing-based statistics bureau is set to report the data at 11 a.m. Tokyo time tomorrow.

China’s exports may have dropped 19 percent last month from a year earlier, according to another survey for data that is due tomorrow. That would be the slowest decline since March.

The dollar fell for a fifth day against the euro, its longest stretch since May, before speeches by Atlanta Fed President Dennis Lockhart and Fed Vice Chairman Donald Kohn.

Chicago Fed President Charles Evans said yesterday it’s too early for the Fed to tighten credit, suggesting interest rates in the world’s largest economy will remain near zero. Dallas Fed President Richard Fisher repeated his forecast for a “prolonged period of sluggish economic performance.”

‘Funding Currency’

“The market is working against the dollar, which is the favored funding currency when equities are rising and you want to buy risky assets,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “We anticipate potential further weakness of the U.S. dollar, and the euro is going to be higher.”

Lockhart will speak on U.S. and global economic interactions in Jacksonville, Florida, and Kohn will deliver remarks on the unconventional U.S. monetary policy response to the financial crisis in Washington later today.

In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another nation with higher interest rates.

Benchmark interest rates are as low as zero in the U.S. and 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 for investors seeking higher returns.

New Zealand Dollar

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, was at 76.902 after dropping yesterday to as low as 76.803, the weakest level since Sept. 26, 2008.

New Zealand’s currency strengthened against all 16 major counterparts after Reserve Bank Governor Alan Bollard left the official cash rate at a record low of 2.5 percent amid expectations the economy faces a slow recovery from the worst recession in three decades. Bollard moved away from considering rate cuts, compared with the previous monetary policy statement on July 30.

Dollar Pessimism

“New Zealand’s central bank wasn’t quite as aggressive as it might have been, switching away from the possibility of rate cuts to a commitment to keeping rates at a record low,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “The kiwi is also benefiting from the current broad pessimism regarding the U.S. dollar.”

New Zealand’s currency advanced for the first time in three days against Australia’s dollar as falling employment added to signs the latter’s economy may slow in coming months. Reports yesterday showed Australian retail sales unexpectedly fell in July and home-loan approvals ended a record nine-month run of gains as the effect of government stimulus spending wanes.

The kiwi traded at NZ$1.2329 per Australian dollar, 0.5 percent stronger.