By Ye Xie and Jamie McGee Nov. 17 (Bloomberg) -- The yen rose for a second day against the dollar as a decline in global stocks led investors to sell higher-yielding assets to pay back low-cost loans funded in the Japanese currency. Japan's yen also advanced against the Brazilian real and Norway's krone on speculation carry trades will unwind as central banks lower interest rates. The U.S. has entered a recession that will persist into next year, and global economies will contract, a survey of business economists indicated. ``We are experiencing the economic consequence of the financial shock,'' said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. ``The dollar-yen will be lower. We haven't seen the bottom.'' The dollar dropped 0.4 percent to 96.78 yen at 11:42 a.m. in New York, from 97.14 on Nov. 14. The U.S. currency decreased 0.7 percent to $1.2687 per euro from $1.2605. The yen traded at 122.73 per euro, compared with 122.39. The pound was the biggest gainer versus the dollar among major currencies as investors judged its first drop below $1.50 in 6 1/2 years last week as difficult to sustain. The 14-day relative strength index of the pound versus the dollar fell to 22.22 on Nov. 14, the lowest in almost three weeks. A reading below 30 indicates a currency's decline is so fast that a reversal may be coming. The index increased to 30.37 today. Sterling rose 2.1 percent to $1.5043 and 1.5 percent to 84.17 pence per euro. It fell to $1.4557 on Nov. 13, the lowest since June 2002, and declined to 86.63 pence per euro, the lowest since the 15-nation currency's 1999 debut, as the British economy slipped into a recession. Pound Forecast The pound will drop early next year to $1.28 per dollar, the lowest since 1985, as U.K. banks shrink foreign borrowings and the country's policy makers favor a weaker currency, wrote Paul Meggyesi, a foreign-exchange strategist at JPMorgan & Chase Co., in a research note dated Nov. 14. Sterling will weaken to a record 92 pence per euro, he wrote. The yen gained 3 percent to 41.81 against the real and 0.6 percent to 13.88 per Norwegian krone today on bets investors will reduce trades in which they 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 13.75 percent in Brazil and 4.75 percent in Norway. The Standard & Poor's 500 Index slipped 1.5 percent today, while the MSCI Word Index dropped 1.6 percent. Volatility implied on one-month dollar-yen options climbed to 27.05 percent from 26.63 percent on Nov. 14, indicating greater exchange-rate fluctuation risks that may erode profit on so-called carry trades and hurt corporate earnings. Canon Profits 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, Nikkei English News reported without saying where it got the information. The yen has gained 14 percent versus the dollar, 33 percent against the euro and 53 percent against the Australian dollar in the past three months on slumping global economies. Australia's dollar, the worst-performing currency against the U.S. dollar and the yen since the end of June, may rebound, prices of iPod music players and Big Mac hamburgers indicate. Apple Inc.'s ``classic'' iPod costs $249 in the U.S. and the equivalent of $220 in Australia, a gap that suggests the so- called Aussie will appreciate as much as 24 percent to 80 U.S. cents by May, according to Tsutomu Komiya, a money manager at Daiwa Asset Management Co. in Tokyo. Komiya accurately predicted the start of the currency's decline in July. Aussie's Decline The Aussie has weakened 32 percent against the U.S. dollar and 38 percent versus the yen this half. Daiwa owns 3.8 percent of Australia's debt, the most among reported holdings. The U.S. economy will contract 0.2 percent in 2009 after growing 1.4 percent this year, according to the median estimate in a poll of business economists taken by the National Association for Business Economics. A majority of respondents said the U.K., the euro countries, Japan, Canada and Mexico are either now, or will soon be, in a recession. Japan's 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, the Cabinet Office in Tokyo reported. Economists predicted 0.1 percent growth, a Bloomberg survey showed. The Group of 20 developed and emerging economies, after a summit that ended in Washington on Nov. 15, urged a ``broader policy response'' to the global slump. Losses at financial institutions totaled $964 billion since the start of last year. ``There were a lot of enthusiastic prescriptions but no specifics,'' said Andrew Busch, a currency strategist at BMO Capital Markets in Chicago. To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Jamie McGee in New York at jmcgee8@bloomberg.net

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