Yen Falls as Recovering Global Economy Boosts Demand for Yield

Tokyo - The yen weakened for a third day against the euro as improving economic data and central bank comments that the global recession is abating spurred investors to buy higher-yielding assets.

The euro traded near the strongest level in two weeks against the dollar before a report that economists said will show European industrial orders fell at a slower pace. Asian stocks extended a global rally after Federal Reserve Chairman Ben S. Bernanke said last week chances for near-term growth “appear good.” The Australian dollar rose a fifth day, recovering from losses this month amid concern China will slow lending and trim its demand for resources.

“Bullish comments from Bernanke combined with positive data in the U.S. and Europe are helping calm anxiety about the global economy,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Securities Inc., the world’s largest foreign-exchange trader. The yen and dollar are likely to be sold against higher-yielding currencies as “risk-appetite improves.”

The yen fell to 135.90 per euro as of 7:44 a.m. in London from 135.21 in New York on Aug. 21. It earlier declined to 136.09 per euro, the weakest since Aug. 14. The Japanese currency dropped to 94.95 per dollar from 94.38. The dollar traded at $1.4313 per euro from $1.4326.

Australia’s currency strengthened 0.5 percent to 83.86 U.S. cents and advanced 1.1 percent to 79.63 yen.

Stocks Gain

The MSCI Asia Pacific Index of regional shares rose 2.5 percent and Japan’s Nikkei 225 Stock Average rallied 3.4 percent. The Standard & Poor’s 500 Index gained 2.2 percent last week, touching a 10-month high, as a report showed sales of existing U.S. homes climbed.

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

The euro climbed toward the strongest level in a week against the Japanese currency as a Bloomberg News survey of economists showed orders at industrial companies in the euro region fell 28.3 percent from a year earlier in June, following a 30.1 percent drop in the previous month. The European Union’s statistics office will announce the data in Luxembourg today.

German business confidence will rise for a fifth month in August, according to the median estimate of economists surveyed by Bloomberg. The Munich-based Ifo institute is scheduled to release its report on sentiment on Aug. 26.

Support for Euro

“An expected rise in the Ifo index will lend some support for the euro, especially against the dollar,” said Masashi Nakamura, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. The euro may rise as high as $1.4410 this week, he said.

“Prospects for a return to growth in the near term appear good,” while “critical challenges remain,” including possible further losses for financial firms, Bernanke said Aug. 21 at a symposium in Jackson Hole, Wyoming.

European Central Bank President Jean-Claude Trichet said at the conference the following day there were “some signs confirming that the real economy is starting to get out of the period of freefall.” This “does not mean at all that we do not have a very bumpy road ahead of us,” he said.

Durable Goods

The dollar fell against 10 of the 16 major currencies before reports this week forecast to show durable goods orders rose and the decline in house prices slowed.

Orders for durable goods, those meant to last several years, jumped 3 percent in July, reversing the previous month’s 2.5 percent decline, economists projected an Aug. 26 report from the Commerce Department will show.

The S&P/Case-Shiller index of property values in 20 U.S. metropolitan areas probably fell 16.5 percent in June from a year earlier, the smallest decline in almost a year, a separate survey showed. The report is due tomorrow.

Gains in Australia’s currency were tempered after the Bureau of Statistics said new vehicle registration fell 6.9 percent in July, snapping a three-month gain.

This combined with “lingering uncertainty about Australia’s relationship with China may weigh on the Australian currency,” said Toshiya Yamauchi, manager of the foreign- exchange margin trading department in Tokyo at Ueda Harlow Ltd.

Australian Options

The Australian dollar, which gained 19 percent this year through July, is little changed this month as China, the nation’s largest trading partner, slowed spending that spurred gains in commodities and bets Australia would be among the first to raise interest rates.

Options to sell the Australian dollar in the next month cost 2.32 percentage points more than contracts to buy the currency on Aug. 18, a day after China’s Shanghai Composite dropped by the most in nine months. That’s the biggest premium on puts since Feb. 17, reversing the 0.445 percentage point extra that traders were willing to pay for the right to buy the Aussie in March, when it gained 8 percent.

Futures traders reduced bets the Australian dollar will gain against the U.S. currency, figures from the Washington- based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar compared with those on a drop -- so-called net longs -- was 44,120 on Aug. 18, compared with net longs of 48,846 a week earlier.