Yen Falls on Speculation Japanese Importers Selling Currency

By Kosuke Goto and Ron Harui

Jan. 31 (Bloomberg) -- The yen fell against the dollar, paring gains for the month, on speculation Japanese importers are selling the currency to pay month-end bills.

The yen declined most against the South African rand and the Brazilian real as Asian stocks reversed earlier losses, giving Japanese investors confidence to buy higher-yielding assets. The dollar traded near a two-week low versus the euro after the Federal Reserve cut its benchmark interest rate half a percentage point and indicated further reductions may be needed.

``Japanese importers are selling the yen and buying the dollar,'' said Tetsuhisa Hayashi, chief currency trader in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly traded lender by assets. ``There is special demand for the dollar at the end of the month.''

The Japanese currency fell to 106.46 per dollar at 11:25 a.m. in Tokyo, from 106.27 yesterday in New York, paring its monthly advance to 4.7 percent. It traded at 157.95 against the euro from 157.93. The yen may fall to 107 per dollar today, Hayashi said.

The yen declined 1.1 percent to 14.5805 against the rand from 14.4295 in New York yesterday. It also slid 0.4 percent to 60.5575 against the real and 0.2 percent to 211.73 versus the pound. The MSCI Asia Pacific Index of regional shares gained 0.9 percent after falling as much as 0.6 percent.

The dollar traded at $1.4842 per euro after reaching $1.4907 yesterday, the weakest since Jan. 15.

Since 2001

The yen still headed for its biggest monthly gain against the dollar since August 2001 as the Asian equity benchmark was set to suffer the worst performance since September 2001, discouraging investors from buying higher-yielding currencies funded by cheap loans in Japan. It has gained against all the major currencies in January.

The currency rose the most versus South Africa's rand this month, as the Federal Reserve's benchmark interest rate cut failed to ease concern over a U.S. recession.

``Investors are taking money out of riskier assets like stocks and buying back yen,'' said Hiroshi Yoshida, a foreign- exchange trader in Tokyo at Shinkin Central Bank, Japan's fifth- largest publicly traded lender by assets. ``Equity markets show no sign of stabilizing.''

The yen may rise to 156.50 per euro and 105.70 against the dollar today, Yoshida forecast.

One-month implied volatility for the yen rose to 13.45 percent today, from 13.25 percent yesterday. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Higher volatility may discourage carry trades.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between them. The risk is that currency moves erase those profits.

Fed Rate

The dollar has declined against 14 of the 16 most traded currencies this month as the Fed lowered the target for the overnight lending rate between banks to 3 percent.

``I am dollar-bearish,'' said Takeshi Kabe, a senior currency dealer at Mizuho Corporate Bank Ltd. in Tokyo, a unit of Japan's second-largest publicly traded lender by assets. ``The dollar will be sold after the Fed's rate cut. The U.S. economy is worsening.''

The U.S. currency may fall to as low as 105.50 yen and $1.4920 per euro today, Kabe said.

The U.S. currency has dropped 6.6 percent against the euro since the Fed began cutting the target rate for overnight lending between banks in September to prevent the housing slump from plunging the world's largest economy into recession.

Weighing on Dollar

``The weak dollar trend will continue,'' said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank. ``Concern over the U.S. recession was not excessive. It's becoming real. We expect the Fed to cut rates again by a half percent in March and a quarter percent in April.''

The dollar may fall to 104 yen and $1.52 per euro by March 31, Yamamoto said.

The dollar fell to $1.4967 on Nov. 23, the lowest since the European currency debuted in 1999, as falling U.S. interest rates made dollar-denominated assets less attractive to international investors.

When the Fed made an emergency reduction last week, the dollar dropped 1.2 percent against the euro, the most in more than two years. The fed funds target fell below the European Central Bank's main refinancing rate, currently 4 percent, for the first time since November 2004.