By Ron Harui and Stanley White Nov. 17 (Bloomberg) -- The euro fell for a second day against the dollar on speculation that European central bankers will today signal further interest-rate reductions to counter the recession in the 15-nation region's economy. The currency also dropped versus the yen as traders raised bets that the ECB will lower its 3.25 percent benchmark rate in coming months. Government reports on Nov. 14 showed the region slid into its first recession since the euro's introduction in 1999. ``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.'' The euro weakened to $1.2561 as of 3:00 p.m. in Tokyo from $1.2605 late in New York on Nov. 14. It dropped to 121.68 yen from 122.39 yen. The yen traded at 96.89 per dollar from 97.14. ECB 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 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, showing increased odds for an ECB rate cut. G-20 Summit Japan's yen advanced against 11 of the 16 most-active currencies, rising the most versus South Korea's won. It climbed 0.5 percent to 14.48554 against the won, 0.5 percent to 13.8994 versus Norway's krone and 0.5 percent to 12.131 against Sweden's krona. The yen strengthened 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. Appetite for so-called carry trades was also reduced as Japan's economy unexpectedly shrank in the third quarter, entering the first recession since 2001. 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 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.'' `Risk Aversion' In carry trades, investors purchase higher-yielding assets funded with currencies borrowed at lower rates. The yen rose 2 percent against the euro last week, 5.1 percent against the Australian dollar and 8.1 percent versus the New Zealand dollar. Benchmark interest rates are 0.3 percent in Japan, 1 percent in the U.S., 3.25 percent in Europe, 12 percent in South Africa, 5.25 percent in Australia and 6.5 percent in New Zealand. ``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.'' The Japanese government today reported that gross domestic product fell at an annualized 0.4 percent pace in the three months ended Sept. 30, after sliding a revised 3.7 percent in the previous period. Economists predicted 0.1 percent growth, a Bloomberg survey showed. `More Severe' ``Given that the global economy is decelerating, Japan's downturn will continue,'' Economic and Fiscal Policy Minister Kaoru Yosano said after the report. He said there's a risk that that the slump will become ``more severe'' because the global financial crisis is spreading to emerging economies. Japan's currency may rise to 92 per dollar by year-end, he said. Volatility implied on one-month dollar-yen options climbed to 27.82 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. 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. 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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