Yen Falls a Second Day as Stock Gains Reduce Demand for Safety

Jan. 27 (Bloomberg) -- The yen weakened for a second day against the dollar and the euro as gains in stocks reduced demand for the currency as a haven from the financial crisis.

Japan’s currency also fell against the Australian dollar and the Brazilian real as measures of bond risk declined after Barclays Plc said it doesn’t need to raise further capital because revenue increased last year. The British pound and the euro strengthened as speculation eased that losses will widen at European banks.

“We’re seeing an improvement in sentiment because it appears Barclays has avoided a crisis,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “People will trim their bets on declines in the euro and the pound. There’s a bias for the yen to weaken.”

The yen declined to 89.50 against the dollar as of 1:29 p.m. in Tokyo from 89.10 late yesterday in New York. Japan’s currency fell to 118.46 per euro from 117.51. The euro climbed to $1.3236 from $1.3189.

Sterling touched a one-week high of $1.4080 after Barclays said yesterday it retains more than 17 billion pounds ($23.9 billion) even after it wrote down another 8 billion pounds of bad loans. The currency rose to $1.4059 from $1.3993.

Britain’s currency plunged to $1.3503 on Jan. 23, the lowest level since September 1985, after the government announced a second bank bailout in three months and a further injection of funds into Royal Bank of Scotland Group Plc.

Share Gains

The MSCI Asia-Pacific Index of regional shares rose 3.1 percent, the biggest gain in six weeks, after the Standard & Poor’s 500 Index climbed yesterday for a second day.

The Markit iTraxx Australia index, a measure of the cost of protecting investors in corporate bonds from default, declined nine basis points to 325 basis points in Sydney, according to Westpac Banking Corp.

The yen weakened to 59.40 versus the Australian dollar from 58.76 late yesterday in New York, and to 38.7676 versus the Brazilian real from 38.5693. The yen slid to 8.9380 against the South African rand from 8.85.

Japan’s currency gained 6.9 percent against the euro and 1.2 percent versus the dollar this month as more than $1 trillion in losses on mortgage-related securities at financial institutions worldwide prompted investors to seek safety in the yen. Investors tend to buy the currency in times of turmoil because Japan has a current-account surplus, meaning it doesn’t need to rely on overseas investors to fund its debt.

‘Sense of Calm’

“A sense of calm has returned to currency markets,” said Tetsu Aikawa, deputy general manager of the capital markets division at Shinsei Bank Ltd. in Tokyo. “A rebound in equities is also attracting yen selling orders.”

The yen may weaken to 119 versus the euro in the next few days, he said.

Gains in the euro may be limited before a German report today that economists say will show business sentiment worsened, bolstering expectations for the European Central Bank to cut its 2 percent benchmark interest rate.

The Ifo research institute may say its business climate index, based on a survey of 7,000 executives, dropped to 81 this month from 82.6 in December, according to a Bloomberg News survey. The report is due at 10 a.m. in Munich.

“We expect the single currency to remain in a broad downtrend, in particular versus the dollar,” analysts led by Zurich-based Mansoor Mohi-Uddin at UBS AG, the second-largest currency trader last year, wrote in a research report yesterday. “We expect price pressures to keep on abating, and this will likely enable the ECB to ease rates further.”

Sell the Euro

UBS recommends selling the euro with a target of $1.25 and an automatic buy order at $1.3450 to limit losses, according to the report.

ICE futures’ Dollar Index, which tracks the currency against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the krona, fell 0.6 percent to 84.261 after losing 1 percent yesterday, the biggest decline since Dec. 17.

The dollar gained 5.6 percent against the euro and 3.9 percent against the pound this month, extending rallies of 4.4 percent and 36 percent last year, respectively, as investors fled higher-yielding assets and sought protection in the world’s reserve currency.

Federal Reserve policy makers will maintain the target lending rate in a range of zero to 0.25 percent at a two-day meeting ending tomorrow, according to a Bloomberg survey of analysts. The central bank may broaden the range of assets it will purchase to unclog credit markets.