By Ron Harui and Stanley White Nov. 21 (Bloomberg) -- The yen declined against the dollar and the euro as a rebound in Asian equities revived demand for higher-yielding assets financed with loans in Japan. The yen also weakened against the Australian dollar, a favorite of so-called carry trades, after the Reserve Bank of Australia bought its own currency for at least the fifth time in four weeks. The dollar dropped versus the euro on speculation the Federal Reserve will cut interest rates and flood the financial system with cash as a recession causes prices to fall. ``Once stock markets turn around, the argument for buying yen does as well,'' said Gerrard Katz, head of foreign-exchange trading in Hong Kong at Standard Chartered Plc, a U.K. bank that gets most of its profit from Asia. ``People have been leaning too far in the same direction. There's also talk of intervention in other currencies.'' The yen fell to 94.60 per dollar as of 2:30 p.m. in Tokyo from 93.69 late yesterday in New York, trimming this week's gain to 2.7 percent. It dropped to 118.16 per euro from 116.68 yesterday. The euro bought $1.2491 from $1.2453, paring its weekly decline to 0.9 percent. Japan's currency weakened to 58.64 versus Australia's dollar from 57.23 late yesterday in New York. The Australian dollar traded at 62.00 U.S. cents from 61.07 cents. The MSCI Asia-Pacific Index of regional shares gained 2 percent, after earlier sliding as much as 2.3 percent. U.S. stock-index futures climbed, pointing to gains after the Standard & Poor's 500 Index yesterday closed at an 11-year low. RBA Intervention The Reserve Bank of Australia bought a record A$3.15 billion in the market in October, it said yesterday, as the Australian dollar touched 60.10 U.S. cents, the lowest since 2003. An RBA spokesman confirmed the bank bought Australian dollars this morning, ``providing liquidity as on previous occasions.'' The yen still headed for a third weekly gain against the dollar and the euro as U.S. lawmakers held off taking action on a bailout requested by the nation's automakers, spurring a reduction in so-called carry trades. ``Money is flowing back to funding currencies like the yen,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co. Ltd., a unit of Japan's largest brokerage. ``It's difficult to change the trend of stock declines pushing up the yen. Until we reach a conclusion on U.S. automakers, risk is off the table.'' U.S. Democratic congressional leaders said yesterday they will delay action at least until next month on government support for General Motors Corp., Ford Motor Co. and Chrysler LLC as the three companies haven't yet made a case for the help. `Global Recession' Honda Motor Co. said yesterday it is trimming production plans at U.S. plants by 18,000 more vehicles as sales decline. Honda, Toyota Motor Corp. and Nissan Motor Co. traditionally earn at least half of their operating profit in the U.S. A stronger yen erodes the value of the carmakers' overseas sales. JPMorgan Chase & Co. forecasts the yen will advance to 87 against the dollar and 103 per euro by year-end. ``There's strong possibility that the yen will continue appreciating as the global recession may deepen,'' said Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co. and a former chief foreign-exchange trader at the Bank of Japan. ``It's an environment where losses in cross-yen currencies are likely to be even bigger than those in the dollar-yen.'' In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. BOJ Holds Rates The Bank of Japan held its benchmark at 0.3 percent and said it will consider pumping more money into the financial system to prop up an economy that fell into a recession last quarter. Japan's rate compares with 6.5 percent in New Zealand, 3 percent in the U.K., 8.25 percent in Mexico and 4 percent in South Korea. BOJ Governor Masaaki Shirakawa instructed his staff to study new ways of making money available for lending, such as accepting corporate debt as collateral, the central bank said in a statement in Tokyo today. The unanimous rate decision followed a cut from 0.5 percent last month, the first in seven years. To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

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