Yen Declines to 11-Month Low as Japanese Buy Assets Overseas

By Stanley White and Kosuke Goto

June 24 (Bloomberg) -- The yen fell to an 11-month low against the euro on speculation Japanese investors will use summer bonuses to buy overseas assets offering higher yields than at home.

The currency also declined toward a four-month low against the dollar as Japanese finance companies seek to raise more than 1 trillion yen ($9.2 billion) for funds investing abroad by June 30, according to data compiled by Bloomberg. The dollar was little changed against the euro as an industry survey may show U.S. consumer confidence slumped, reinforcing expectations the Federal Reserve will leave interest rates on hold tomorrow.

``Capital outflows should weigh on the yen,'' said Hideo Shimomura, who oversees the equivalent of $4 billion as a chief fund manager at Mitsubishi UFJ Asset Management Co., a unit of Japan's largest publicly traded lender. ``Funds focused on infrastructure of oil-producing and resource-rich nations are doing well.''

The yen fell to 168.19 per euro at 8:09 a.m. in London from 167.35 last yesterday in New York. It reached 168.24, the lowest since July 23, 2007. The currency declined to 108.08 per dollar from 107.85 yesterday and a four-month low of 108.58 on June 16. The dollar traded at $1.5547 per euro from $1.5518.

Volatility implied by dollar-yen options expiring in one month fell to 10.55 percent from 10.61 percent. Traders quote the measure of expectations for currency swings as part of pricing options. Lower volatility reduces the risk exchange-rate moves will erode the profit from investing overseas.

Against the Australian dollar, the yen fell to a seven- month low of 103.21. It also declined to 212.80 per British pound from 211.97.

Mutual Funds

Employees at private companies may get summer bonuses totaling 14.8 trillion yen this year, down 1.8 percent from a year earlier, according to Kazuyoshi Nakata, an economist in Tokyo at Mitsubishi UFJ Research and Consulting Co., a unit of Japan's largest publicly traded lender by assets.

T&D Asset Management Co. will seek to raise 500 billion yen for a fund focused on Chinese environment-related business on June 27. Daiwa Asset Management Co. will seek 20 billion yen for commodity funds. Japan's benchmark rate of 0.5 percent is the lowest among major economies, making assets outside of the country more attractive to domestic investors.

The Australian dollar bought 95.36 U.S. cents, near a two- week high of 95.67 cents, after Rio Tinto Group said China agreed a record price increase for iron ore, Australia's largest export. The South Korean won rose 0.5 percent to 1,033.50 per dollar after Choi Jong Ku, head of the South Korean finance ministry's international finance bureau, said authorities will take ``continuous'' steps to stabilize the currency.

U.S. Economy

The U.S. Conference Board's confidence index declined to 56 in June, the lowest since December 1992, from 57.2 in May, according to a Bloomberg News survey of economists. The research group will release the data at 10 a.m. in New York. The S&P/Case-Shiller home-price index fell 16 percent in April from a year earlier, according to a separate survey. The report is due an hour before the confidence survey.

``Weak consumer confidence could ripple through the currency market and keep pressure on the dollar,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``Expectations for a Fed rate increase later this year are slowly peeling away.''

The dollar may fall to 107.60 yen today, he forecast.

Fed Meeting

All 102 economists surveyed by Bloomberg News predict the Fed will leave rates unchanged at a two-day meeting starting today. The dollar has traded in a range of $1.5303 to $1.5843 per euro since Fed Chairman Ben S. Bernanke said June 9 economic risks had faded.

Traders have since reduced bets on a rate increase. Futures contracts show a 38.9 percent chance the Fed will raise rates by at least a quarter of percent at its meeting in August, down from 68.5 percent odds a week ago.

Any gains in the euro may be limited after a survey showed German consumer confidence declined, reducing speculation the European Central Bank will raise borrowing costs.

The dollar has gained 1.7 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers. The greenback is down 7 percent this year.

Slowdown in Europe

The Nuremberg-based GfK AG's index for July, based on a survey of about 2,000 people, fell to 3.9, from 4.9 in June. That was lower than the median forecast of 4.6 from 28 economists surveyed by Bloomberg News.

``Economic data point to a slowdown in Europe and make it hard for the ECB to raise rates beyond its July policy meeting,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. ``The euro may move between $1.53 and $1.58 against the dollar in one month.''

Investors reduced bets yesterday on rate increases by the ECB, futures contracts showed. The implied yield on the March Euribor futures contract dropped 2 basis points to 5.31 percent. The contract has gained 55 basis points in the past month.

ECB President Jean-Claude Trichet speaks today. He said June 5 the bank may increase the 4 percent main refinancing rate by a quarter-percentage point next month. The central bank will make such an increase by the end of September and the Fed will hold its target unchanged, according to the median forecast of economists in Bloomberg News surveys.

``There's still an expectation the ECB will tighten quicker than the Fed,'' said Alan Ruskin, head of international currency strategy, at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``But if they're tightening into weakening data,'' the ECB may be more cautious.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net