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
stocks dropped globally, encouraging investors to sell higher-yielding
assets and pay back low-cost loans in Japan. The dollar extended its
losses after a government report showed U.S. retail sales declined the
most in three years.
``This market is still skittish,'' said Jon Gencher, director of
currency sales at BMO Capital Markets in Toronto. ``If equities take a
nosedive, the yen will be in favor.''
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 in Washington. Federal Reserve Bank
of San Francisco President Janet Yellen said yesterday in a speech in
Palo Alto, California, that the economy ``appears to be'' in a
recession.
``Concerns over a U.S. recession may now intensify as those over a
financial crisis have abated for the time being,'' said Masafumi
Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of
Scotland Plc in Tokyo and a former Bank of Japan currency trader.
``These worries may lead to dollar selling, yen buying.''
Money-market rates fell for a third day, fueling speculation that the
global bailouts are starting to thaw credit markets. The London
interbank offered rate, or Libor, that banks charge each other for
three-month dollar loans dropped 9 basis points, or 0.09 percentage
point, to 4.55 percent, the British Bankers' Association said.
The dollar rose to the highest level versus the euro since March 2007
on Oct. 10, partly because banks' reluctance to lend to each other
spurred a surge in demand for U.S. currency funding in global money
markets. The U.S. Treasury announced yesterday a plan to inject $250
billion into financial institutions, one day after European governments
committed $1.8 trillion to guarantee loans and invest in lenders.
``There will be slow improvement in wholesale funding,'' said Robert
Sinche, head of global currency strategy at Bank of America Corp. in
New York. ``Over time, the dollar funding issue will sort itself out,
which will lead to some retracement of the recent dollar gains. Any
doubt on whether we'll have a recession has to fade now.''