The yen and the dollar weakened against higher-yielding currencies as Asian stocks advanced, giving investors more confidence to buy riskier assets. Japan’s currency also fell after a gauge of expected movements in the foreign-exchange markets declined to the lowest since September, indicating a lower risk of fluctuations that can undermine so-called carry trades. South Korea’s won gained the most among the 16 most-active currencies versus the dollar after the government sold bonds overseas for the first time in more than two years to bolster its foreign-exchange reserves. “Stocks are up and risk appetite is improving,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. The yen and the dollar are likely to be sold, he said. The yen declined to 133.11 per euro as of 8:42 a.m. in London from 132.48 in New York yesterday. Japan’s currency fell 1.1 percent to 58.45 versus the New Zealand dollar, and dropped 1 percent to 71.57 to the Australian dollar. The yen weakened to 100.14 against the greenback from 99.83. The euro was little changed at $1.3285, after falling to $1.3148 yesterday, the lowest level since March 30. Trading in currencies may be more subdued than usual as the Easter holidays start tomorrow, Lee said. The yen fell against all 16 of the most-traded currencies as the MSCI Asia Pacific Index of regional shares advanced 3.2 percent and the Nikkei 225 Stock Average rose 3.7 percent. Lowest Since Lehman Expectations for swings in the yen against the dollar slid to the lowest since Lehman Brothers Holdings Inc. failed, as a perceived easing of the global financial crisis reduces the lure of Japan’s currency, according to Daiwa Securities Group Inc. “Expectations that policy actions around the world will provide a safety net have reduced the risk of yen appreciation and pushed down volatility,” said Takahide Nagasaki, senior currency strategist at Daiwa Securities SBC Co. in Tokyo. Volatility on one-month yen-dollar options fell to as low as 15.25 percent this week, the least since Sept. 15, when Lehman Brothers failed, data compiled by Bloomberg show. Gains in the euro may be tempered on speculation a German report today will show the nation’s recession is deepening, backing the case for the European Central Bank to keep cutting interest rates. The yield on the three-month Euribor interest-rate futures contract for June delivery fell to 1.265 percent today from 1.34 percent a week ago, according to data compiled by Bloomberg. ‘Downside Pressure’ German industrial output dropped a seasonally adjusted 3 percent in February, a sixth month of declines, according to a Bloomberg News survey before the Economy Ministry report. “Worries are resurfacing over the economies in Europe,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Downside pressure on the euro is likely to increase.” The Japanese currency also weakened after the Nikkei newspaper reported Japan’s ruling coalition is considering spending as much as 50 trillion yen ($500 billion) in public funds to buy stocks in event of a market decline. Legislation would be submitted to the Diet with the 2009 supplementary budget, the newspaper cited party officials as saying. The won ended a two-day losing streak versus the dollar after the finance ministry said it sold $3 billion of dollar- denominated bonds overseas, to boost its defense of the currency. South Korea’s currency reserves slid to $206 billion at end-March, from a record $264 billion a year earlier, as policy makers lent money to enable banks and companies to pay overseas debt. The government has expanded its access to foreign exchange in the past six months via currency swaps with the U.S., Japan and China, and this week said it will extend a $100 billion state guarantee on banks’ foreign debt until the end of 2009. ‘Want Exposure’ “Investors would want exposure to Korea for a turnaround story,” said Scott Bennett, who helps manage $28 billion in the region in Singapore at Aberdeen Asset Management Asia Ltd. “The currency has come back a lot.” The won rose 2.4 percent to 1,322.50 per dollar, according to Seoul Money Brokerage Services Ltd. Losses in the dollar may be limited before a U.S. report that economists say will show the trade deficit held at a six- year low in February, adding to signs the U.S. slump is easing. The trade shortfall will remain unchanged from the previous month at $36 billion in February, the least since October 2002, a Bloomberg survey showed. The Commerce Department will release the report at 8:30 a.m. in Washington. ‘Bottoming Out’ “There’s a possibility that the U.S. economy is bottoming out, as policy makers’ measures are starting to work,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd. “This would be positive for the dollar.” The Dollar Index, which the ICE uses to track the greenback versus the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 84.977 from 85.361. In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits. Benchmark rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and in New Zealand.

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