The yen weakened beyond 96 against the dollar for the first time since November as Japan’s deteriorating economy eroded demand for the currency as a refuge from the global financial crisis. The currency also dropped against the euro and South African rand as Japanese Prime Minister Taro Aso’s approval rating slumped. The dollar pared its decline against the euro and rose versus the pound as Federal Reserve Chairman Ben S. Bernanke said the U.S. recession may last into 2010, increasing demand for the world’s reserve currency as a haven. “There’s continued weak economic data coming out of Japan and a decoupling of the yen-strength-on-equity-weakness trade,” said Andrew Busch, a global currency strategist in Chicago at BMO Capital Markets, a unit of Canada’s fourth-largest bank. “The ruling government there has got subterranean approval ratings.” Japan’s currency declined 2.3 percent to 96.83 per dollar at 10:42 a.m. in New York, from 94.61 yesterday. It touched 96.85, the weakest level since Nov. 25. The yen depreciated 2.6 percent to 123.23 per euro from 120.10 after reaching 123.25, the weakest since Jan. 9. The dollar slid 0.3 percent to $1.2733 per euro from $1.2694 after earlier losing 1.1 percent. The U.S. currency increased 0.7 percent to $1.4384 versus the pound and pared its drop versus the euro as Bernanke said in remarks to the Senate Banking Committee that the U.S. economy is in a “severe” contraction and urged “strong action” by policy makers. ‘Pessimistic’ Bernanke “The dollar is actually rallying on the pessimistic comments from Bernanke because investors are still flocking to the safety of U.S. dollar,” said Kathy Lien, director of currency research in New York at GFT, an online currency trading firm. “People are realizing the problems in the U.S. are going to have a more lasting impact on the global economy than previously anticipated.” The yen was the best performer in 2008 among the 171 currencies tracked by Bloomberg, climbing 23 percent versus the dollar and 29 percent against the euro. The gains undermined overseas sales for exporters including Toyota Motor Corp., Honda Motor Co. and Sony Corp. The yen will trade at 96 against the dollar at the end of 2009, according to the median forecast of 47 economists surveyed by Bloomberg. The correlation between the dollar-yen and the Nikkei-225 Stock Average was minus 0.89 since Feb. 16, when a report showed Japan’s economy shrank at an annual 12.7 percent pace in the last quarter, the most since the 1974 oil shock. The relationship was positive 0.86 in the 12 months to Feb. 16. A reading of 1 would mean the two moved in lockstep. ‘Broken Down’ “The correlation has broken down because the drivers are now changing,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA. “Dollar-yen in particular will continue to move quite sharply higher.” Japan’s currency declined against most of the major currencies today, losing 2.4 percent to 9.63 against the South African rand and 2 percent to 16.45 versus the Danish krone. The yen declined against the euro for a fifth straight day, the longest stretch since September. The MSCI World Index dropped 0.7 percent today, its 11th straight decline, as every major stock market in Europe fell. The Standard & Poor’s 500 Index gained 0.8 percent after decreasing yesterday to the lowest level since 1997. “The intensification of the slowdown in Japan, that’s helping to drive something of a break in the relationship between yen strength and higher risk aversion,” said Todd Elmer, a New York-based currency strategist at Citigroup Global Markets. Trade Deficit Japan’s Finance Ministry will say tomorrow that the trade deficit increased in January to the widest level in 23 years, according to a Bloomberg News survey of economists. Core consumer prices probably fell for the first time in more than a year in January, economists in a separate survey predict a government report will show Feb. 27. Prime Minister Aso’s approval rating fell 6.8 percentage points from last month to 11.4 percent, while his disapproval rating rose 8.8 points to 80.2 percent, according to the Sankei survey, conducted with Fuji News Network. The governing Liberal Democratic Party has the support of 21.9 percent, compared with 25.9 percent for the opposition Democratic Party of Japan. The relationship between stocks and the yen has been in place since the beginning of 2005, when the so-called carry trade was established, according to Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi Ltd in London, which said at the end of January that the yen would start to weaken. Carry ‘Unwound’ “From recent price action, I think it’s a fairly good bet that the carry has been unwound, and that will certainly weaken the risk-yen correlation,” Halpenny said. In the carry trade, investors buy higher-yielding currencies with lower-yielding ones, such as the yen. The yen gained 30 percent against the dollar from June 22, 2007, to Dec. 17, 2008, as the carry trade all but evaporated. Ukraine’s hryvnia weakened below its lowest close on record of 9.1 per dollar after Moody’s Investors Service said it may cut the nation’s credit rating because political disputes are hurting policy makers’ attempts to address the economic crisis. The ratings company placed Ukraine’s government local and foreign-currency bond ranking of B1, four levels below investment grade, on review for downgrade, Washington-based Moody’s said today.

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