Yen Gains

The yen rose for the first time in five days against the dollar on speculation the U.S. plan to invest $250 billion in financial institutions won't prevent the world's largest economy from falling into a recession.

Japan's currency gained versus the euro and the South African rand as U.S. stocks plunged, encouraging investors to sell higher-yielding assets and pay back low-cost loans in Japan. The dollar extended its loss against the yen after a U.S. Commerce Department report showed retail sales declined in September by the most in three years.

Japan's currency climbed 1.3 percent to 100.77 per dollar at 2:24 p.m. in New York, from 102.07 yesterday. It will strengthen to 95 in the next few weeks, Yanagihara said. The yen increased 2 percent to 136.26 per euro from 139.04. The dollar rose 0.7 percent to $1.3526 per euro from $1.3619 as investors sought a haven.

U.S. retail sales decreased 1.2 percent in September, the most since August 2005, following a 0.4 percent drop in the prior month, the Commerce Department reported today.

The economy deteriorated throughout the U.S. last month, and pessimism about the outlook spread, the Federal Reserve said in its regional economic survey, known as the Beige Book because of the color of its cover. Fed Chairman Ben S. Bernanke said in a speech in New York that government efforts to calm financial markets and stem the credit crisis probably won't lead to an economic rebound ``right away.''

Japan's currency gained 9 percent to 10.15 against the South African rand while the Swiss franc rose 4.3 percent to 11.27 Mexican pesos as a drop in global stocks increased speculation that investors will abandon carry 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 and Switzerland's 2.5 percent benchmark compare with 12 percent in South Africa and 8.25 percent in Mexico.

Canadian dollar weakened for a second day as crude oil fell below $75 a barrel and reports showed the U.S. economy may fall into recession. The currency has depreciated 14.9 percent since July 11 when crude reached a record $147.27. Canada relies on commodities for about half its export revenue. Its largest trading partner is the U.S.

The Canadian dollar weakened as much as 2.3 percent to C$1.1888 per U.S. dollar, from C$1.1624 yesterday. It last traded at C$1.1852 at 3:31 p.m. in Toronto. One Canadian dollar buys 84.35 U.S. cents.

The Australian and New Zealand dollars fell as stocks and commodity prices declined on concern a $3 trillion effort to shore up the global financial system will fail to prevent a global economic recession.

The Australian currency retreated after yesterday's record gain against the yen as U.S. equities dropped on speculation company earnings will weaken due to slumping demand. The Australian and New Zealand dollars ended two days of gains against the U.S. currency as prices of commodities the two nations export declined.

The Australian dollar slid 2.4 percent to 67.30 U.S. cents as of 3:30 p.m. in New York from late in Asian trading yesterday. The currency fell 2.5 percent to 67.7 yen. It surged 9.8 percent against Japan's currency yesterday, the biggest gain since the Australian dollar was allowed to trade freely in December 1983.

New Zealand's dollar weakened 2.3 percent to 60.05 U.S. cents, and slid 2.9 percent to 60.897 yen., Bloomberg
10/15/2008 12:56:42 PM