By Ye Xie and Lukanyo Mnyanda Dec. 22 (Bloomberg) -- The yen weakened against the euro and the dollar as a record plunge in Japanese exports last month signaled the world’s second-largest economy was falling deeper into a recession. The ruble fell to the lowest level against the dollar in almost three years as Russia devalued the currency and tumbling oil prices this year battered its economy. The dollar weakened against the euro before data this week forecast to show U.S. consumer spending and durable goods orders declined. “When Japan’s trade performance deteriorates, the yen tends to weaken,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second- largest bank. “Japan’s growth outlook is concerning.” The yen dropped 1.1 percent to 125.60 per euro at 9:36 a.m. in New York, from 124.22 on Dec. 19, paring its gain this year to 30 percent. The yen depreciated 0.5 percent to 89.74 per dollar from 89.31 and reached 90.23, the weakest level since Dec. 16. The yen may decline to 102 per dollar by the end of 2009, according to Osborne. The dollar weakened 0.6 percent to $1.3994 per euro from $1.3912. It slid to $1.4719 on Dec. 18, the weakest level since Sept. 25. The ruble weakened as much as 1 percent to 28.4651 versus the dollar, the lowest level since January 2006, as Bank Rossii allowed the currency to decline for the second time in three working days and the ninth time since Nov. 11, according to a central bank official who declined to be identified. The currency has declined 17 percent against the dollar since the beginning of August. Yen This Year The yen appreciated 24 percent against the dollar this year, headed for its biggest annual gain since at least 1972, as more than $1 trillion of credit-market losses sparked a seizure in money markets and threw the world’s largest economy into a recession. A stronger yen contributed to a 27 percent drop in Japan’s exports in November from a year earlier, a Japanese government report showed today. The decline was the biggest since comparable data became available in 1980. Bank of Japan Governor Masaaki Shirakawa said today the nation’s exports may decline further because of the yen’s strength this year and the global slowdown. Toyota Motor Corp., the world’s second-largest automaker, said it expects its first operating loss in 71 years because of plunging North American and European car sales and a surging yen. BOJ Rate Cut Japan’s central bank last week cut its benchmark rate to 0.1 percent from 0.3 percent, increased purchases of government debt and announced plans to buy commercial paper for the first time to counter the recession. Japanese Finance Minister Shoichi Nakagawa signaled the nation was ready to intervene in the foreign-exchange market for the first time in four years. “ I am surprised the Japanese hasn’t intervened thus far,” said Dennis Gartman, economist and editor of the Gartman Letter in Suffolk, Virginia, in an interview on Bloomberg Radio. “Intervention to weaken your currency can be very effective. There’s a great probability that the yen versus the dollar will trade at 100 to 105 over the course of the next year.” The dollar fell for the first time in three days against the euro before U.S. reports that economists expect will show the world’s largest economy is slipping further. Consumer spending fell 0.7 percent in November and orders for durable goods declined, according to Bloomberg News surveys of economists. The Commerce Department will release both reports on Dec. 24. Fed’s Rate Cut The Federal Reserve lowered its target lending rate on Dec. 16 to a range of zero to 0.25 percent. The central bank reiterated plans to purchase agency debt and mortgage-backed securities and said it will study buying Treasuries. “The bias is for the dollar to go lower,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “U.S. economic data are likely to confirm just how bad the outlook is.” The dollar gained 4.5 percent against the euro this year, 34 percent versus the British pound and 28 percent against the Australian dollar as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit. The most volatile foreign-exchange markets since at least 1992 means currency traders will see the smallest pay cuts as the worst financial crisis since the Great Depression wipes out bonuses on Wall Street. While bonuses, which account for the bulk of annual pay for traders and investment bankers, will fall an average 45 percent this year, currency traders will see declines of about 15 percent from 2007, the least of any department, according to Options Group, a New York-based consulting firm. To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

Source