The yen fell for a second day against the euro on speculation Japanese reports will show retail sales and business sentiment are deteriorating, reducing demand for the currency as a refuge from world financial turmoil. The Australian and New Zealand dollars strengthened against the yen as Asian stocks extended a global rally, spurring investors to seek higher-yielding assets. The euro weakened against 13 of the 16 major currencies after the Wall Street Journal reported Banque AIG, a unit of American International Group Inc., may face defaults on $234 billion of derivatives, signaling European banks may incur additional credit losses. “Incoming data are likely to confirm the poor state of the Japanese economy,” said Hiroshi Maeba, deputy managing director of foreign-exchange trading in Tokyo at Nomura Securities Co., a unit of Japan’s biggest brokerage by assets. “The yen may be sold on weak data.” The yen declined to 132.70 per euro as of 2:15 p.m. in Tokyo from 132.48 late in New York yesterday. It touched 134.51 on March 24, the weakest since Oct. 21. Japan’s currency dropped to 97.75 against the dollar from 97.54. It reached 98.58 on March 24, the lowest level since March 18. The dollar traded at $1.3574 per euro from $1.3583, and was at $1.4598 versus the British pound from $1.4552. The Australian dollar climbed to 68.36 yen from 68.05 yen, and the New Zealand currency gained to 56.24 yen from 55.20 yen. Stocks Rally Higher-yielding currencies appreciated against the yen and the dollar after Asian and U.S. shares gained on optimism that the worst of the credit crisis may be over. The MSCI Asia Pacific Index of regional shares rose to a two-month high, adding 1 percent, after the Standard & Poor’s 500 Index rallied 1 percent yesterday. The S&P 500 has advanced almost 11 percent in March, set for its best advance since 1991. “Extreme pessimism about the global economy is receding,“ said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust and Banking Co., a unit of Japan’s seventh-largest publicly traded bank “This is making investors more active and they feel like buying riskier assets.” The yen weakened against all of the 16 most-active currencies today before a trade ministry report tomorrow that economists say will show retail sales declined for a sixth straight month. Sales fell 3 percent in February from a year earlier, after declining 2.4 percent the prior month, according to a Bloomberg News survey of economists. Consumer spending accounts for nearly 55 percent of the nation’s gross domestic product. The Bank of Japan’s Tankan index, which measures confidence among large makers of cars and electronics, slid to minus 55 this quarter from minus 24, the lowest level in more than 30 years, according to a separate Bloomberg survey before the April 1 report. A negative number means pessimists outnumber optimists. Credit Losses Gains in the euro may be curbed on speculation that credit- market losses at European financial institutions will worsen. Banque AIG employees Mauro Gabriele and James Shephard resigned in recent days and AIG must find replacements who are approved by French banking regulators to avoid facing defaults tied to clauses in the derivative contracts, the WSJ reported yesterday, citing unidentified people and an AIG document provided to the U.S. Treasury. “The implications from the report are that European banks could be forced to take responsibility for billions of dollars in derivatives trades,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This report appears to have triggered selling of the euro,” which may weaken further to $1.35 and 132 yen today, he said. ‘Premature’ The global economy is still reeling after firms worldwide reported more than $1.2 trillion in credit losses and writedowns in the financial crisis. “While investors seem to have taken the recent slew of economic data as signs of a sea change in the global recession, I think it is premature to judge it that way,” said Shinichi Hayashi, a currency trader at Shinkin Central Bank, Japan’s sixth-largest lender. “I wonder whether the recent flow into the euro will be sustained.” The Dollar Index fell for a second day on concern Federal Reserve officials speaking today will indicate the central bank is determined to keep borrowing costs low to revive the world’s biggest economy. San Francisco Fed President Janet Yellen said yesterday there are “severe” risks warranting whatever policies are needed to revive growth. These comments may be echoed by Dallas Fed President Richard Fisher, who speaks at 12 p.m. in Dayton, Ohio, and Richmond Fed President Jeffrey Lacker who talks at 12:30 p.m. in Charleston, South Carolina. The Fed said last week it would buy as much as $300 billion of Treasuries and more than double purchases of housing debt to $1.45 trillion, hoping to reduce rates on home loans. The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, dropped to 83.771 from 83.808.

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