Yen Heads for Biggest Weekly Gain Since May

The yen rose against the dollar and headed for its biggest weekly gain since May as U.S. lawmakers disagreed over a financial rescue and Washington Mutual Inc. became the nation's biggest bank to collapse.

Japan's currency also strengthened against the euro and the Brazilian real after a group of Republicans opposed to the Treasury's $700 billion asset-purchase plan submitted an alternative proposal, prompting investors to reduce holdings of higher-yielding assets funded in Japan.

The yen rose 0.5 percent to 106.06 per dollar at 3:03 p.m. in New York, from 106.56 yesterday, extending this week's gain to 1.3 percent. The yen increased 0.4 percent to 155.01 per euro, from 155.68, and was up 0.3 percent for the week. The dollar traded at $1.4616 per euro, compared with $1.4609. It has depreciated 1 percent since Sept. 19.

The yen gained 1.8 percent to 57.45 versus the real today and 0.9 percent to 88.19 against the Australian dollar on speculation investors will exit trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 4.25 percent in Europe, 7 percent in Australia and 13.75 percent in Brazil.

Brazilian real declined 1.9 percent to 1.8554 per dollar today and was headed for a 12 percent drop this month, the biggest among the most-active currencies. The Aussie fell 0.5 percent to 83.08 U.S. cents and was down 3.1 percent in September.

Japan's currency has increased 2.6 percent versus the dollar in September, the first monthly gain since March. Against the euro, Japan's currency has advanced 3 percent. The dollar is up 0.4 percent versus the euro this month.

China's yuan slid by the most since a peg against the dollar was scrapped in July 2005 on speculation policy makers are limiting appreciation to aid exporters and sustain growth amid global financial turmoil. The Chinese currency fell 0.46 percent to 6.8485 per dollar as of 5:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System.

India's rupee declined for a seventh week, the longest stretch in more than 2 1/2 years, on speculation losses in financial markets will widen as a U.S. rescue package is delayed in Congress. The rupee declined 1.5 percent this week to 46.5475 against the dollar at the 5 p.m. close in Mumbai.

Russia's ruble headed for a second weekly gain versus the dollar-euro basket amid speculation fewer funds are leaving the country after the government pledged to bail out the market. The managed currency was at 30.2252 to the basket by 2:50 p.m. in Moscow, from 30.2361 late yesterday., Bloomberg
9/26/2008 12:38:44 PM