Yen Gains to Record Versus Pound on Concern Bank Losses to Rise

By Ron Harui

Jan. 20 (Bloomberg) -- The yen rose to a record against the pound and gained versus the euro on speculation credit-market losses will widen after the U.K. increased aid to banks, curbing demand for higher-yielding assets funded in Japan’s currency.

The British pound fell to a six-year low versus the dollar after the U.K. government said it would spend an extra 100 billion pounds ($142 billion) to support the nation’s banks, a second lifeline in three months, and increase its stake in Royal Bank of Scotland Group Plc. The Australian and New Zealand dollars slumped against the yen as financial stocks led a decline in Asian shares.

“Investors are risk averse given ongoing worries that credit losses will spread,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The markets are concerned whether the government can resolve this crisis. The bias is for the yen to be bought.”

The yen rose 2.4 percent to 127.69 per pound as of 7:55 a.m. in London from 130.71 late yesterday. It reached an all-time high of 127.44. Japan’s currency climbed to 117.08 per euro from 118.47, and advanced to 90.39 against the dollar from 90.64. The yen may gain to 125 per pound and 90 against the dollar today, Ishikawa said.

Australia’s dollar slumped 2.4 percent to 59.90 yen and New Zealand’s currency declined 3 percent to 48.17 yen from late in Asia yesterday. The MSCI Asia-Pacific index of regional shares fell 2.3 percent, ending a two-day gain.

‘Sell Any Sterling’

“I would urge you to sell any sterling you might have,” said Jim Rogers, chairman of Singapore-based Rogers Holdings, in an interview with Bloomberg Television. “It’s finished. I hate to say it, but I would not put any money in the U.K.”

Rogers correctly predicted the start of the commodities rally in 1999. In January 2008, he advised investors to sell the U.S. currency. The Dollar Index traded on ICE futures, which tracks the greenback against six major trading partners, rose 6 percent last year.

The euro dropped to $1.2959 from $1.3069 late in London yesterday. It touched $1.2942, the weakest level since Dec. 10. The pound fell to $1.4138 from $1.4420, after touching $1.4133, the lowest since March 2002. Europe’s single currency advanced to 91.73 pence from 90.59 pence, after reaching 91.85 pence, the highest in two weeks.

‘Big Losses’

“Sterling has struggled due to the announcement of the new policy measures, in addition to reports of big losses in the U.K. banking sector,” Ashley Davies, a currency strategist at UBS AG in Singapore, wrote in a research note today. “We continue to see bearish sterling views being expressed through the dollar.”

The pound weakened versus all of the 16 most-active currencies before a government report today economists say will show the inflation rate fell in December, giving the Bank of England more room to cut interest rates.

U.K. consumer prices rose 2.6 percent from a year earlier, the least since March, after a 4.1 percent increase in November, according to a Bloomberg News survey. The Office for National Statistics will release the data at 9:30 a.m. in London.

The Bank of England reduced its benchmark rate to 1.5 percent this month, the lowest in the bank’s history. Policy makers will probably cut the rate to 1 percent at their Feb. 5 meeting, according to a separate Bloomberg survey.

Trade Surpluses

At a time when interest-rates are sinking toward zero around the world, the biggest currency traders are recommending countries that have the largest trade surpluses, led by Japan, Norway and Switzerland.

BNP Paribas SA, the best currency forecaster in a 2007 Bloomberg survey, says the yen will strengthen about 14 percent against the dollar by June. Goldman Sachs Group Inc. made Norway’s krone one of its top 2009 picks, with possible gains of 17 percent versus the dollar. Bank of America Corp., the largest U.S. lender by assets, says the Swiss franc will advance against every major currency.

“When the dollar-yen breaks 85, the Bank of Japan would be in the market to intervene” to sell the yen, Eisuke Sakakibara, a former top currency official at Japan’s Ministry of Finance, said in a Bloomberg Television interview. “This is just an indication of the fact that Japanese authorities are afraid of an abrupt appreciation of the currency at the time when the Japanese economy is in recession.”

Investors Confidence

The euro declined to the lowest level in almost six weeks against the dollar before a German report today that economists say will show investor confidence fell for an 18th month.

The ZEW Center for European Economic Research may say at 11 a.m. in Mannheim that its index of investor and analyst expectations was at minus 43.1 in January, from minus 45.2 the prior month, a Bloomberg survey shows.

Europe’s single currency also declined for a second day versus the yen as the euro-area economy will likely shrink 1.9 percent in 2009 and will probably grow 0.4 percent next year, the Brussels-based European Commission said yesterday.

“We still believe that these estimates are likely to be surprised on the downside,” analysts led by Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas in London, wrote in a research note yesterday. “We expect the euro to remain under pressure.”

The euro will decline to $1.20 and to 94 yen by the end of June, BNP Paribas forecasts.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.