Yen Declines to the Lowest Since January on Slowing Economy

By Ye Xie

Aug. 6 (Bloomberg) -- The yen fell to the lowest since January against the dollar after Japan's government said the economy is ``deteriorating,'' acknowledging for the first time that the country's longest postwar expansion has probably ended.

The currency also fell against the Swedish krona, South Korean won and Norwegian krone on speculation the Bank of Japan will keep its benchmark interest rate at 0.5 percent, encouraging Japanese investors to send money abroad for higher yields. The euro traded near a seven-week low against the dollar before a European Central Bank meeting tomorrow when policy makers are forecast to keep borrowing costs unchanged.

``The Japanese economy is slipping into a recession,'' said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. ``The concern is that Japanese interest rates are too low. This is one major reason people are selling the yen.''

The yen fell 0.4 percent to 108.83 per dollar at 9:12 a.m. in New York, the highest since Jan. 14, from 108.35 yesterday. The euro traded at $1.5438, from $1.5454 yesterday. Earlier it touched $1.5436, the weakest since June 16. The euro also advanced to 168.07 yen from 167.42.

To contact the reporter on this story: Ye Xie in New York at Yxie6@bloomberg.net;

Last Updated: August 6, 2008 09:19 EDT