The yen also rose against the Australian dollar after the Reserve Bank of Australia said it favored lower borrowing costs. The dollar advanced against the euro amid speculation overseas investors bought more of the safest U.S. assets as the global economy slumps.
Japan's currency rose to 121.40 yen against the euro at 6:30 a.m. in New York from 121.99 yen yesterday. It traded at 96.23 against the dollar, from 96.43 yen. The dollar rose to $1.2618 from $1.2650. The Australian dollar fell 0.2 percent to 64.73 U.S. cents and slid 0.5 percent to 62.27 yen.
The yen's drop came as stocks in Europe and Asia declined for a second day, led by financial companies and commodity producers, and U.S. index futures fell on concern the deepening recession will erode profits.
The Australian dollar extended declines after the Reserve Bank of Australia said its three-quarters-of - a-percentage-point cut to 5.25 percent on Nov. 4 would ``enable a further meaningful reduction in rates paid by borrowers,'' minutes of the meeting showed today.
The yen's 16 percent gain against the dollar this year caused exporters including Toyota Motor Corp. to cut profit targets. Toyota, which makes more than 75 percent of its sales abroad, forecast profit will fall this fiscal year by almost 70 percent. The automaker will fire 3,000 workers by March.
The Dollar Index, a measure of the greenback against a basket of currencies of six trading partners, approached a two- year high before the Treasury releases data today that will probably show investors almost doubled holdings of U.S. securities in September.
The British pound recouped some of its decline against the dollar, trading at $1.5001 from $1.4989 yesterday. The currency fell 24 percent versus the dollar this year. Former Chancellor of the Exchequer Norman Lamont said the pound's drop will help the U.K. economy as long as it doesn't turn into a ``run'' on the currency.