Yen Weakens as Japanese Investors Purchase More Overseas Assets

The yen fell the most in eight weeks against the dollar and declined versus the euro on speculation Japanese investors will buy more overseas assets on signs the global recession is easing.

The yen weakened versus all 16 of the most-traded currencies after Japan’s Ministry of Finance said the nation’s investors boosted purchases of foreign bonds to the most in a month. Australia’s dollar rose toward a seven-month high against the U.S. currency on optimism the world economy is recovering, reviving demand for higher-yielding securities. New Zealand’s dollar gained after Standard & Poor’s raised its outlook on the country’s debt rating.

“Signs that the worldwide slump is waning are making Japanese investors more comfortable in putting money into higher-yielding assets,” said Tsutomu Soma, a bond and foreign- exchange dealer at Okasan Securities Co. in Tokyo. “S&P’s upgrade of New Zealand’s credit-rating outlook is likely to whet their appetite.”

The yen dropped 1.7 percent to 96.97 per dollar as of 8:05 a.m. in London from yesterday in New York, the biggest drop since March 31. It earlier fell as much as 1.8 percent. The yen declined to 134.01 per euro from 131.83 yesterday, after falling to 134.26, the lowest since May 11. The dollar traded at $1.3821 per euro from $1.3825.

Australia’s currency gained 0.2 percent to 77.69 U.S. cents and advanced 1.8 percent to 75.31 yen. New Zealand’s dollar strengthened 0.6 percent to 61.79 U.S. cents and rose 2.3 percent to 59.91 yen.

Best Performer

New Zealand’s dollar is the best performer against the yen this month, gaining 7.5 percent. The nation’s 10-year government bonds offer 4.41 percentage points more yield than similar- maturity Japanese debt.

The so-called kiwi reversed earlier declines versus the greenback after S&P raised the outlook on the country’s sovereign debt rating to stable from negative, saying today’s budget showed the “government in sound position.”

The yen also fell the most in a week against the euro as the Nikkei 225 Stock Average reversed earlier losses to gain 0.1 percent, boosting demand for riskier assets.

“Equity markets of emerging economies, including Asia, are holding a relatively firm undertone, which means risk appetite is still reasonably strong,” said Akira Takeuchi, a Tokyo-based currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “The yen will be sold against higher-yielding currencies.”

Japanese investors bought 641.1 billion yen ($6.61 billion) more overseas bonds and notes than they sold in the week ended May 23, the biggest net purchases in a month, according to a report released by the Ministry of Finance today.

Investment Trusts

Nomura Asset Management Co., a unit of Japan’s largest brokerage firm, reopened its higher-yielding bond fund to new investments yesterday. The net assets of the fund, which includes holdings such as Brazilian real-denominated debt, rose to 287.9 billion yen from 45.3 billion yen in January, according to Nomura’s Web site.

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Japanese retail sales fell for an eighth month in April, reducing the appeal of the nation’s currency. Sales slid 2.9 percent from a year earlier after dropping a revised 3.8 percent in March, the Trade Ministry said in Tokyo.

General Motors

The dollar traded near a one-week high against the euro on speculation General Motors Corp. may file for bankruptcy this week, renewing demand for the relative safety of the greenback.

A General Motors bankruptcy filing became almost certain after the world’s largest automaker failed yesterday to persuade enough bondholders to take equity in a streamlined company in exchange for $27 billion of debt. The debt-for-equity swap offer by GM failed to win the required 90 percent approval of bondholders by the time it expired last night.

“GM’s insolvency looks practically inevitable, which would likely cause risk aversion,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This could spark buying of the dollar.”

Demand for the euro may weaken before a government report that economists say will show German unemployment rose for a seventh month as company orders slumped in the worst recession in half a century.

The jobless rate increased a seasonally adjusted 64,000 in May, sending the adjusted jobless level to 8.4 percent from 8.3 percent, according to a Bloomberg News survey of economists before the Federal Labor Agency report today.

“Given renewed concerns about the banking system and the economy there following the rapid run-up of late, the euro may be sold back toward $1.37,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank.