Yen Strengthens

The yen rose against the euro and the dollar as falling stocks and shrinking manufacturing in China and Russia encouraged investors to buy back the Japanese currency at the expense of higher-yielding assets.

The yen rose versus the British pound and New Zealand dollar as reports showed a slump in South Korean exports and a decline in Japanese wages. China’s yuan fell the most in seven weeks as manufacturing contracted by a record, while the ruble slid to a 2 1/2-year low as output shrank more than during the 1998 crisis. Central banks in the U.K., the euro region, Australia and New Zealand are forecast to cut interest rates by as much as 1.5 percentage points this week to stem the slump.

The yen appreciated 1.8 percent to 119.03 per euro at 7:02 a.m. in New York, from 121.22 on Nov. 28. It strengthened 1.7 percent to 93.90 per dollar. The dollar was at $1.2673 per euro from $1.2691. The yen will trade at 116 per euro by the end of this week, Klawitter said.

The Japanese currency gained 4 percent to 141.03 per pound, the biggest jump since Nov. 12, and 3.6 percent against the Australian dollar.

The yen appreciated against all major currencies except South Korea’s won as concern of a global recession prompted domestic investors in Japan to bring back overseas earnings.

Japan’s benchmark interest rate of 0.3 percent compares with 5.25 percent in Australia, 6.5 percent in New Zealand, 3.25 percent in euro-zone and 3 percent in the U.K.

Interest rates will be lowered 1.5 percentage points to 5 percent in New Zealand, to 4.5 percent in Australia, to 2 percent in the U.K. and to 2.75 percent in the euro region this week as central banks move to stem the economic slowdown, according to Bloomberg surveys.

China’s purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November, from 44.6 in October, the China Federation of Logistics and Purchasing said today. South Korean exports tumbled 18.3 percent in November from a year earlier.

The yuan traded at 6.8816 per dollar, from 6.8346 at the end of last week. U.S. Treasury Secretary Henry Paulson visits Beijing for trade talks in three days’ time.

The dollar fell against the yen before U.S. reports this week that economists predict will show manufacturing shrank and employers cut jobs by the most since 2001.

The euro declined against the dollar and the yen after a report last week showed the inflation rate dropped to 2.1 percent in November from 3.2 percent the previous month, giving policy makers more room to lower borrowing costs when they meet Dec. 4. Retail sales dropped 0.4 percent in October from the prior month, after a 0.2 percent decline in September, a separate Bloomberg survey shows. The report is due Dec. 3.,
12/1/2008 5:01:07 AM