The yen and the dollar rose on speculation stress tests on the largest U.S. banks will show additional loan losses, boosting demand for the two currencies as a refuge from the global financial crisis. The yen also advanced after a government report showed Japan unexpectedly posted a trade surplus in March, reviving the allure of the Japanese currency as a shelter from the worldwide recession. Australia’s dollar weakened against the greenback and the yen after a report showed the inflation rate fell to an 18- month low, giving policy makers more room to cut interest rates. “Investors remain averse to taking on risk amid lingering worries over the financial turmoil,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The yen and the dollar are being bought as ‘safe-haven’ currencies.” The yen climbed to 126.83 per euro as of 1:36 p.m. in Tokyo from 127.81 in New York yesterday, when it reached 126.09, the highest level since March 16. Japan’s currency advanced to 98.16 against the dollar from 98.73. The dollar rose to $1.2921 against the euro from $1.2948 in New York yesterday. It touched $1.2889 on April 20, the strongest since March 16. The U.S. currency advanced to $1.4611 versus the British pound from $1.4673. Australia’s dollar declined to 70.31 U.S. cents from 71.14 cents in New York yesterday, and dropped to 69.01 yen from 70.24 yen. New Zealand’s dollar fell to 55.49 cents from 56.40 cents, and weakened to 54.47 yen from 55.66 yen. Stress Tests The yen rose versus all 16 most-active currencies after a regulatory official said the U.S. government’s stress tests on the 19 largest U.S. banks are increasingly focusing on the quality of loans the lenders made after finding wide variations in underwriting standards. The remark provides insight into the April 24 release of the regulator’s methodology for the tests. The person also said the tests don’t amount to solvency judgments, noting that estimates of each bank’s losses over the coming two years won’t necessarily equal the amount of new capital it needs to raise. The Federal Reserve plans to release results of “stress tests” on banks on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen. Worldwide losses tied to loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and the credit crisis exact a higher toll on financial institutions, the International Monetary Fund said yesterday. ‘Positive Influence’ The dollar typically strengthens in times of financial turmoil as investors take refuge in the greenback as the world’s reserve currency. The yen also gains as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 86.581. Japan’s currency also advanced after the Ministry of Finance said custom-cleared exports declined 45.6 percent in March from a year earlier, following a record drop of 49.4 percent in February. “Improvement in terms of trade could have a positive influence on the Japanese economy,” said Susumu Kato, chief economists at Calyon Securities in Tokyo. “The yen will be traded in a stable manner.” Japan’s gross domestic product may have contracted at an annual 10.9 percent pace in the first quarter, economists surveyed by Bloomberg predict, after shrinking at a 12.1 percent pace in the previous three months, the steepest drop since 1974. Australian Inflation Australia’s dollar fell toward a three-week low versus the dollar and the yen after the Bureau of Statistics said today annual inflation slowed, backing the case for the Reserve Bank of Australia to cut interest rates. “With inflation working lower, they would be able to keep interest rates at low levels for a prolonged period of time,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “We are penciling in at least one more rate cut.” The consumer price index in Australia rose 2.5 percent in the first quarter from a year earlier, after gaining 3.7 percent in the fourth quarter, the Bureau of Statistics said in Sydney today. ECB Discord The euro traded near the lowest level in more than a month against the dollar and yen on lingering concern disagreement is deepening among European Central Bank policy makers on measures needed to combat the recession in the region. “The anxiety about disparity on policy action among ECB policy makers is still strong,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “This may continue to outweigh the impact of yesterday’s better-than-expected ZEW survey.” ECB member and Belgian central bank Governor Guy Quaden will speak at a press conference today. ECB President Jean- Claude Trichet said in Tokyo on April 18 he wouldn’t exclude another “very measured” rate cut, though a zero interest-rate policy wouldn’t be appropriate for the bank. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy. The ECB’s next meeting is May 7. The index of investor and analyst expectations turned positive for the first time in almost two years, the ZEW Center for European Economic Research said yesterday. The ZEW index rose to 13, the highest level since June 2007, from minus 3.5 in March.

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