The yen and dollar fell against the euro after the Bank of Japan said it will step up purchases of government debt, encouraging investors to seek higher-yielding assets overseas. The yen tumbled to its weakest level this year against the euro and the dollar was near a one-month low against the European single currency as stocks rallied, damping demand for refuges from the financial turmoil. The pound fell 1.2 percent against the dollar after a report showed U.K. unemployment last month rose at the fastest pace since at least 1971. “In general, the market will tend to treat quantitative easing as being negative for currencies,” said Adarsh Sinha, a London-based foreign-exchange strategist at Barclays Capital. “The Bank of Japan’s decision was a baby step for these unconventional policies.” Japan’s currency traded at 128.64 against the euro as of 7:19 a.m. in New York, from 128.35 yesterday. It earlier dropped to 128.83, the weakest since Dec. 29. The yen was at 98.64 per dollar, from 98.60. The dollar fell to $1.3040 per euro, from $1.3017. The U.S. currency touched $1.3072 on March 16, the lowest level since Feb. 10. The MSCI World Index climbed 0.3 percent after the Standard & Poor’s 500 Index rose 3.2 percent yesterday. The S&P 500 surged 11 percent last week in its biggest rally since November. “We’ve seen a bear market rally in risk appetite and in riskier assets such as equities,” Callum Henderson, Singapore- based head of foreign-exchange at Standard Chartered Bank said in a Bloomberg Television interview. “That has taken the upside pressure off the dollar.” BoJ Action The Bank of Japan said today after its two-day policy meeting ended that it will increase the amount of government debt it will buy to 1.8 trillion yen ($18.3 billion) a month from 1.4 trillion yen. The BOJ has purchased the bonds since 1989 and last increased the amount in December. “The direction is clearly up for” the euro, said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. It may be that a “recovery in risk appetite, given expectations of quantitative easing from central banks, is supporting equity markets.” The yen is down 8.2 percent versus the dollar this quarter, the end of the nation’s fiscal year, as demand waned for the currency as a shelter from the financial crisis. Dollar Decline “We believe that the increasingly aggressive monetary easing approach taken by the Bank of Japan will ultimately act to undermine the yen further alongside a gradual improvement in risk sentiment,” wrote London-based Lee Hardman, a Bank of Tokyo-Mitsubishi Ltd. foreign-exchange strategist in a note today. The Dollar Index slipped 0.2 percent amid speculation the Federal Reserve will say at the end of a two-day policy meeting today that it is shifting toward more aggressive monetary expansion. The index, which the ICE uses to track the U.S. currency’s performance against the euro, yen, British pound, Canadian dollar, Swiss franc and Swedish krona, was at 86.774, from 86.933. Fed Chairman Ben S. Bernanke and his colleagues may signal that they will accelerate so-called quantitative easing measures, such as increasing the pace and size of purchases of mortgage securities. The board will keep its benchmark interest rate in a range of zero to 0.25 percent, according to a Bloomberg News survey. The yen rose to as high as 98.29 against the dollar after U.S. Treasury Secretary Timothy Geithner signaled the “wind down” of American International Group Inc. may quicken. ‘Aggressive Efforts’ “We will continue our aggressive efforts to resolve the future status of AIG in a manner that will reduce systemic risks to our financial system,” Geithner wrote in a letter yesterday to House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and other lawmakers. “We will explore any and all ways to accelerate this wind-down process.” Geithner has been criticized by Congress for presiding over AIG’s payment of about $165 million in bonuses and retention pay. The company received a government bailout package in September that has since grown to about $170 billion. “The market has been paying attention to the recovery in the U.S., but now with AIG, uncertainty has increased,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment-banking unit of Credit Agricole SA. “There are risks associated with the U.S. financial industry, so the risk aversion type of strategy will remain intact,” supporting the yen, he said. The British pound fell the most among the 16 most-actively traded currencies after the Office for National Statistics reported that jobless claims rose 138,400 to 1.39 million. Separately, the Bank of England voted unanimously to print 75 billion pounds ($98 billion) in money in an emergency bid to shore up the economy. The U.K. currency fell 1.1 percent to $1.3890 against the dollar and 1.4 percent to 93.90 pence against the euro.

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