Yen, Dollar Weaken as Stocks Advance on U.S. Bank Rescue Plan

By Yasuhiko Seki and Ron Harui

March 24 (Bloomberg) -- The yen fell to a five-month low against the euro and the dollar weakened on speculation U.S. plans to help banks dispose of toxic assets will encourage investors to seek higher yields.
The dollar approached a two-month low versus the European currency after Treasury Secretary Timothy Geithner unveiled proposals to finance as much as $1 trillion in purchases of illiquid property assets, damping demand for the safety of the greenback. South Korea’s won and Australia’s dollar strengthened for a third day against the yen as Asian stocks extended a worldwide rally on optimism the worst of the global financial turmoil may be over.

“Active policy steps by the U.S. government tentatively weaken demand for ‘safe’ currencies,” said Akira Takei, who helps oversee the equivalent of $42.5 billion as head of non-yen bonds at Mizuho Asset Management Co., a unit of Japan’s second- largest bank. “Capital inflows into the currencies of emerging markets are rising.”

The yen declined to 133.58 per euro as of 12:58 p.m. in Tokyo from 132.17 late yesterday in New York. The Japanese currency touched 134.07, the weakest level since Oct. 21. The dollar dropped to $1.3662 per euro from $1.3633. The greenback declined to $1.3738 on March 19, the weakest level since Jan. 9. The yen slipped to 97.78 per dollar from 96.95.

Australia’s dollar rose 0.2 percent to 70.64 U.S. cents, heading for an 11th day of gains, the longest stretch since July 2007. The currency climbed 1 percent to 69.03 yen. South Korea’s won advanced 1.4 percent to 14.15914 versus the yen.

Higher Yields 

The yen weakened against all the 16 most-traded currencies on speculation the rally in stocks will spur investors to sell the nation’s bonds and purchase higher-yielding assets overseas. Japan’s benchmark interest rate is 0.1 percent, compared with 1.5 percent in the euro region, and 3.25 percent in Australia.
The Nikkei 225 Stock Average rose 1.4 percent, its sixth gain in seven days and the MSCI Asia Pacific Index of regional equities advanced 1.3 percent.

“Shares in the region are rising, suggesting improving risk-taking appetite among investors,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Japan’s fundamentals are deteriorating. The yen will probably be sold.” 

The dollar and the yen weakened versus the euro after the U.S. plan to relieve banks of real-estate debt received initial support from investors such as BlackRock Inc., the largest publicly traded U.S. asset manager, and Carlyle Group, a closely held private-equity firm.

‘Really Good Thing’

“This is not a panacea; it is not a silver bullet,” Laurence Fink, chairman of New York-based BlackRock, said yesterday in an interview. “But this will take some of the overhang out of the marketplace. It is incrementally a really good thing.”

Japan’s currency declined for a third day against the dollar on concern a government report tomorrow will show the world’s second-largest economy posted a trade deficit for a fifth month, suggesting reduced demand for the nation’s exports.

The custom-cleared trade shortfall was 20 billion yen ($205 million) in February, narrowing from a record gap of 956.9 billion yen in January, according to a Bloomberg News survey of economists before the Ministry of Finance report.

The yen has fallen versus 15 of the 16 major currencies this quarter, weakening the most versus Norway’s krone and Brazil’s real. Against the yen, the krone has surged 20 percent to 15.6245 and the real has climbed 11 percent to 43.7056.

Dollar Index 

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, declined for a second day, dropping 0.2 percent to 83.216. The gauge dropped 4.1 percent last week, the biggest decrease since September 1985, after the Fed said it would start buying U.S. debt. The index declined 5.3 percent in March, paring its gain this quarter to 2.5 percent.
The U.S. currency slid almost 5 percent versus the euro last week, its biggest decline since mid-December, after the Federal Reserve unexpectedly announced on March 18 that it would buy as much as $300 billion of Treasuries and increase purchases of agency mortgage-backed securities to lower consumer borrowing costs, a policy known as quantitative easing.

“The Geithner plan was very well received by the markets, as financials rallied strongly,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a note yesterday. “The dollar should remain under pressure across the board.”

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: March 24, 2009 00:04 EDT