The yen headed for its first weekly decline against the dollar in two months after inflation slowed and industrial production slumped, adding to speculation the Bank of Japan will pump cash into the economy at a faster pace. The yen was on course for a third weekly decline versus the euro as BOJ policy board member Hidetoshi Kamezaki said the central bank may consider “extraordinary steps” to improve access to funding for companies. The dollar fell for a fifth week against the euro as industry reports showed the U.S. recession caused holiday-season spending to decline. “Panicked buying of the yen has come to an end,” said Mitsuru Sahara, senior currency sales manager at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest lender by assets. “The BOJ has done what it can do in response to a global downturn and has effectively adopted a quantitative easing policy.” The yen traded at 90.47 per dollar as of 9:24 a.m. in London from 90.38 late yesterday in New York. It weakened to 90.99 on Dec. 23, the lowest since Dec. 15. Against the euro, the yen was at 127.19 from 126.67. The euro bought $1.4059 from $1.4025. The yen may move between 90 and 90.80 versus the dollar today, Sahara said. Trading volumes may be less than normal as financial markets are closed today in Australia, Hong Kong and the U.K., he said. Quantitative easing, in which policy makers focus more on providing cash through debt purchases than on lowering interest rates, can weaken a currency because it increases its overall supply in the financial system. Weekly Performance Against the dollar, the yen fell 1.3 percent this week, its biggest decline since the five days ended Oct. 31. It weakened 2.4 percent versus the euro. Japan’s currency also slid 1.8 percent against the Australian dollar and 1.5 percent versus the New Zealand dollar. The dollar fell 1.1 percent versus the euro from Dec. 19. Japan’s consumer price index excluding fresh food rose 1 percent in November, after increasing 1.9 percent in October, the government said today in Tokyo. Factory output tumbled 8.1 percent in November from the previous month, the fastest pace in 55 years. The median estimate was for a 6.8 percent decline. The central bank lowered the overnight lending rate on Dec. 19 to 0.1 percent from 0.3 percent, the second cut in two months, and decided to buy corporate debt for the first time to pump money into the ailing economy. Central bank officials are considering whether to buy a wider range of securities, including corporate bonds and stocks, and the policy board will make a decision based on their findings, Kamezaki told reporters yesterday in Takamatsu, western Japan. Yen Selling “Additional policy easing isn’t likely to focus on the benchmark rate,” Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former BOJ currency trader, wrote in a research note today. “A sudden decline in the inflation rate could push nominal long- term yields lower and become a reason to sell the yen.” Japan’s currency gained 28 percent against the euro and 24 percent versus the dollar this year as the global recession and $1 trillion in losses on mortgage-related securities worldwide prompted Japanese investors to avoid higher-yielding assets and repatriate overseas earnings. The yen was also on course for a 58 percent advance against the Australian dollar and a 66 percent surge versus the British pound this year as the collapse of Lehman Brothers Holdings Inc. in September and a stock market rout prompted investors to repay yen loans used to fund purchases of higher-yielding overseas assets. Rising Volatility Implied volatility on one-month dollar-yen options was at 17.59 percent from 17.76 percent yesterday and 11.45 percent at the end of last year, an increase of 6.14 percentage points, the most since 1998. One-month volatility jumped to 41.79 percent on Oct. 24, the highest level since 1995, when Bloomberg started to compile the data. A rise in volatility increases the risk of so-called carry trades by making profits easier to predict. The dollar headed for a weekly decline against the euro as the recession leads consumers to trim spending and companies to reduce their workforce. U.S. retail sales fell as much as 4 percent this holiday season as consumers limited purchases to necessities, according to SpendingPulse. U.S. Economy Spending figures are the lowest since MasterCard Advisors started tracking data in 2002 to provide the SpendingPulse service, Michael McNamara, vice president of research and analysis, said yesterday. He estimates sales, excluding autos and gasoline, fell 2 percent to 4 percent from Nov. 1 through Dec. 24. The number of Americans filing first-time claims for unemployment insurance last week rose to a 26-year high of 586,000, the Labor Department said Dec. 24. “The dollar looks vulnerable and may fall by the middle of next year,” said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. “The state of the U.S. economy suggests the dollar will weaken. It will take some time for fiscal and monetary policy to produce results.” The dollar may reach its post-World War II low of 79.75 yen next year, he said. The Federal Reserve lowered the fed funds target on Dec. 16 to a range of zero to 0.25 percent, the lowest among major economies, and said it would focus on buying debt. The U.S. currency gained 4 percent against the euro this year, 35 percent versus the British pound and 28 percent against the Australian dollar as investors bought the greenback to meet dollar-denominated funding needs after lenders reined in credit.

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