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Yen Rises on Concern U.S. Stress Tests May Show Crisis Not Over

April 22 — The yen rose against all 16 of the most-active currencies on speculation stress tests on the largest U.S. banks will show additional loan losses, boosting demand for the yen as a refuge from the global financial crisis.

Japan’s currency also advanced after a government report showed a slump in the nation’s exports slowed in March, ending a four-month streak of record drops and adding to signs the recession may have started to ease. Australia’s dollar slid against the greenback and the yen after a report showed the nation’s inflation rate fell to an 18-month low, giving policy makers more room to cut interest rates.

“Investors remain averse to taking on risk amid lingering worries over the financial turmoil,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. The yen was bought because it is a “safe-haven” currency, he said.

The yen climbed to 126.99 per euro as of 7:55 a.m. in London from 127.81 in New York yesterday, when it reached 126.09, the highest level since March 16. Japan’s currency advanced to 98.22 against the dollar from 98.73.

The dollar was at $1.2931 against the euro from $1.2948 in New York yesterday. It touched $1.2889 on April 20, the strongest since March 16.

Australia’s dollar declined to 69.20 U.S. cents from 71.14 cents in New York yesterday, and dropped to 69.20 yen from 70.24 yen. New Zealand’s dollar fell to 55.77 cents from 56.40 cents, and weakened to 54.58 yen from 55.66 yen.

The British pound fell to $1.4609 from $1.4673 before Chancellor of the Exchequer Alistair Darling delivers today a U.K. budget with what may be the biggest deficit on record.

Stress Tests

The yen headed toward a three-week high against the dollar after a regulatory official said the U.S. government’s stress tests on the 19 largest U.S. banks are increasingly focusing on the quality of loans the lenders made after finding wide variations in underwriting standards.

The Federal Reserve plans to release results of “stress tests” on banks on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen.

Worldwide losses tied to loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and the credit crisis exact a higher toll on financial institutions, the International Monetary Fund said yesterday.

Japan’s currency also approached a five-week high versus the euro after a government report showed the nation’s overseas shipments slumped 45.6 percent from a year earlier, compared with February’s unprecedented 49.4 percent plunge. Economists predicted a 46.4 percent drop.

Australian Inflation

“Improvement in terms of trade could have a positive influence on the Japanese economy,” said Susumu Kato, chief economists at Calyon Securities in Tokyo. “The yen will be traded in a stable manner.”

Australia’s dollar fell toward a three-week low versus the dollar and the yen after the Bureau of Statistics said today annual inflation slowed, backing the case for the Reserve Bank of Australia to cut interest rates.

“With inflation working lower, they would be able to keep interest rates at low levels for a prolonged period,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “We are penciling in at least one more rate cut.”

Australia’s consumer price index rose 2.5 percent in the first quarter from a year earlier, after gaining 3.7 percent in the fourth quarter, the bureau said in Sydney.

U.K. Budget

The British pound fell on concern Darling’s U.K. budget will limit his ability to counter the worst recession since World War II. The shortfall this year may jump to 160 billion pounds ($232 billion), or 11 percent of gross domestic product, according to a survey of 24 economists conducted by the Treasury. Darling will announce his figures at 12:30 p.m. in London.

The euro traded near the lowest level in more than a month against the dollar on lingering concern disagreement is deepening among European Central Bank policy makers on measures needed to combat the recession in the region.

“The anxiety about disparity on policy action among ECB policy makers is still strong,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “This may continue to outweigh the impact of yesterday’s better-than-expected ZEW survey.”