By Ron Harui and Stanley White Nov. 17 (Bloomberg) -- The yen fell against the dollar and pared gains against the euro as a rebound in Asian equities bolstered confidence in funding purchases of higher-yielding overseas assets in the Japanese currency. The yen also weakened against the Australian and New Zealand dollars, favorites of so-called carry trades, as U.S. stock futures advanced. The euro declined versus the dollar for a second day on speculation that the European Central Bank will lower interest rates to help bolster the 15-nation region's economy. ``Stock markets are recovering, spurring risk-taking appetite,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``The yen is being sold.'' The yen fell to 97.42 against the dollar at 1:47 p.m. in Tokyo from 97.14 in New York on Nov. 14. Against the euro, it was at 122.43 from 122.39 and as strong as 120.19. The euro weakened to $1.2564 from $1.2605. The yen may decline to 98.00 against the dollar and 123.00 versus the euro today, Ishikawa said. Japan's currency slid to 63.02 against the Australian dollar from 62.95 in New York on Nov. 14, and fell to 53.85 versus the New Zealand dollar from 53.79. It earlier gained as much as 3.2 percent and 2.4 percent, respectively, against the South Pacific nations' currencies. The Nikkei 225 Stock Average climbed 2.8 percent, after falling as much as 2.9 percent earlier. U.S. stock index futures advanced. `Off Their Lows' In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.3 percent target lending rate compares with 1 percent in the U.S., 3.25 percent in Europe, 5.25 percent in Australia and 6.5 percent in New Zealand. The yen had strengthened earlier after the Group of 20 nations failed to agree on specific measures to combat a global financial crisis, prompting investors to sell higher-yielding assets funded in Japan. The G-20 urged a ``broader policy response'' and set a March deadline for recommendations on improving regulations at a summit that ended in Washington on Nov. 15. Leaders of G-20 countries met as a seizure in credit markets, stemming from losses of $964 billion on securities tied to home loans, threatened to trigger a global recession. `Risk Aversion' ``Risk aversion may intensify if there is no more policy action after the G-20,'' said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, in a Bloomberg television interview. ``I would expect that the yen will strengthen across the board and the dollar-yen will head lower to as low as 90 yen.'' Japan's government today reported that gross domestic product fell at an annualized 0.4 percent pace in the three months ended Sept. 30, after sliding at a 3.7 percent rate in the previous quarter. Economists predicted 0.1 percent growth, a Bloomberg survey showed. `The implications of the data are positive for the yen,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``A weak economy will feed into risk aversion and this will strengthen the yen.'' Japan's currency may rise to 92 per dollar by year-end, he said. Volatility implied on one-month dollar-yen options climbed to 27.84 percent from 26.63 percent late in New York on Nov. 14, indicating greater exchange-rate fluctuation risks that may erode profit on carry trades and hurt corporate earnings. ECB Rate Bets Canon Inc., the world's largest camera maker, will move its inkjet printer assembly operations from Japan to Thailand in 2010 because the strong yen is hurting profits, the Nikkei English News reported today, without saying where it got the information. The euro declined on speculation that European central bankers will signal further rate reductions after data on Nov. 14 showed the 15-nation euro area slid into its first recession since the currency's introduction in 1999. European Central Bank members Gertrude Tumpel-Gugerell and Axel Weber speak at 9 a.m. and 9:50 a.m., respectively, in Frankfurt. Central banks around the world may lower rates as inflation slows amid a global recession, ECB President Jean- Claude Trichet said in Sao Paulo on Nov. 10. ``The euro's weakness against the dollar is as clear as day,'' said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of Brown Brothers Harriman. ``There are strong expectations for rates in Europe to fall. Euro selling against the dollar is likely to continue.'' Traders increased bets that the ECB will reduce its 3.25 percent benchmark interest rate. The implied yield on Euribor futures contracts expiring in March fell to 2.81 percent on Nov. 14 from 3.15 percent at the end of last month. To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

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