The yen rose to an eight-week high against the dollar after the U.S. Federal Reserve projected a deeper recession, boosting demand for the Japanese currency as a refuge from the global slump. The dollar fell for a third day versus Japan’s currency after minutes of the Fed’s April meeting released yesterday showed policy makers may buy more assets to spur a revival in the world’s largest economy. The euro traded near a four-month high against the dollar before a European manufacturing and services report that may back the case for the region’s central bank to keep interest rates unchanged. South Korea’s won advanced toward a seven-month high against the dollar. “The Fed’s downgrade of growth forecasts, occurring amid an optimistic mood, shocked the markets,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank. “This is leading to buying of the yen.” The yen strengthened to 94.52 per dollar as of 6:16 a.m. in London from 94.88 yesterday in New York. It earlier climbed to 94.29, the highest level since March 20. Japan’s currency advanced to 130.16 per euro from 130.77. The euro traded at $1.3773 from $1.3780 yesterday, when it reached $1.3830, the strongest level since Jan. 5. The dollar fell as low as $1.5817 per pound, the weakest since Nov. 10, before trading at $1.5763 from $1.5755 yesterday. South Korea’s won rose 0.2 percent to 1,248.90 per dollar, after touching 1,225.97 on May 11, the strongest since Oct. 15. Dollar Index The Dollar Index fell for a fourth day after minutes of the Fed’s April 28-29 meeting showed some policy makers said “a further increase” in the total amount of asset purchases may be needed to speed a U.S. economic recovery. The central bank projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, according to the minutes. That compares with January projections for a contraction of 0.5 percent to 1.3 percent. “The Fed may expand its asset-purchase program, which would increase the supply of greenbacks,” said Yuji Saito, Tokyo-based head of the foreign-exchange group at Societe Generale SA, France’s third-largest bank. “This could undermine the value of the dollar and spur investors in the U.S. to put their funds overseas.” The dollar dropped a record 3.4 percent versus the euro on March 18, when the Fed announced plans to buy up to $300 billion in U.S. government debt to keep interest rates low and stimulate the economy, a measure known as quantitative easing. ‘I’m Worried’ Former Fed Chairman Alan Greenspan signaled the financial crisis isn’t over, warning that U.S. banks need to raise “large” amounts of money. “We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,” Greenspan said yesterday before a meeting with House of Representatives members. The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined 0.1 percent to 81.102 after dropping to 80.897, the lowest level since Dec. 31. The yen advanced versus 15 of the 16 most-traded currencies as a survey published by Barclays Capital showed Japan’s money managers judge the market’s outlook for the U.S. economy to be too positive. About 82 percent of the 55 institutional investors who responded described the market’s outlook as either “extremely” or “somewhat” optimistic, according to the survey of Japanese funds released today. Too Optimistic “The majority of Japanese investors believe the outlook for the economy currently factored into the U.S. markets is overly optimistic,” Yoshio Takahashi, head strategist for non- Japanese debt in Tokyo at Barclays Capital, wrote in the research note. Traders are paying a larger premium for yen call options against the dollar, which grant the right to buy Japan’s currency, over puts that provide the right to sell it. The premium on yen calls over yen puts rose to 2.45 percent today from 2.22 percent yesterday. The euro held near the strongest since January versus the dollar before a European report that may show the region’s manufacturing and services contracted at the slowest pace in seven months. A composite index of activity in both industries rose to 42 in May from 41.1 in April, according to the median estimate in a Bloomberg survey of economists before today’s report. “We could see PMIs come in higher than expected, highlighting the improved sentiment in the region,” analysts at Standard Chartered Bank led by Callum Henderson, Singapore-based global head of currency research, wrote in a research note today. “The euro-dollar could establish new highs for 2009 beyond January’s $1.406 high.” ECB Rates Investors reduced bets European policy makers will cut their 1 percent benchmark at their June 4 meeting. The implied yield on the three-month Euribor futures contract for June delivery was 1.185 percent today, from 1.105 percent at the beginning of the week. South Korea’s won advanced as stock-exchange data showed overseas funds bought more shares than they sold for a fifth day. The currency has jumped 21 percent in the past three months. “Behind the won’s rise is the global weakness of the dollar,” said Park June Geun, a currency dealer at BNP Paribas in Seoul. “Should local stocks hold out in the face of a fall in their U.S. counterparts, the won may resume its upward climb even though there are some import settlements from refiners.”

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