May 31 (Bloomberg) -- The yen weakened against its major counterparts as advancing stock markets fanned investments in higher-yielding assets and after Japan’s Social Democratic Party left a three-way coalition government. The Japanese currency, which rose against all 16 most- traded peers this month as Europe’s credit crisis drove investors to the safest assets, fell today after a poll showed more than half the nation’s voters want Prime Minister Yukio Hatoyama to resign. The euro pared its biggest monthly drop since January 2009 after data showed traders are reducing bearish bets on the currency. The Canadian dollar advanced as a report showed the country’s economy expanded at the fastest pace in a decade in the first quarter. “With the rebound in risk appetite people have been very quick to put on new trades against the yen,” said David Deddouche, a currency strategist at Societe Generale SA in Paris. In the past month “the markets moved very sharply so it’s only natural that we’ll see some consolidation.” The yen weakened to 91.44 per dollar as of 8:36 a.m. in New York from 91.06 on May 28. The Japanese currency slid to 112.60 per euro from 111.77 last week. The euro rose to $1.2314 from $1.2273. It climbed earlier to $1.2335. The Stoxx Europe 600 Index of European shares rose 0.4 percent, while futures on the Standard & Poor’s 500 Index climbed 0.5 percent. Public holidays in the U.K. and U.S. reduced trading and made currency movements more erratic, said Roberto Mialich, a senior global-currency strategist UniCredit SpA in Milan. ‘Subdued Activity’ “Activity is subdued today and much will depend on stock- market performance,” he said. Europe’s currency is poised for a 7.6 percent drop against the dollar in May. That’s its sixth-straight monthly decline, the longest since a seven-month streak ending in April 2000. Concern this year that countries such as Greece would default sparked speculation the 16-nation euro would break apart. Fitch Ratings on May 28 stripped Spain of its AAA credit grade, saying the nation’s debt burden is likely to weigh on economic growth. European Central Bank President Jean-Claude Trichet said the bank won’t tolerate a lack of budget discipline in the euro area any longer and it’s time for governments to get their act together. ‘Budgetary Discipline’ “Since our inception, we have always called upon governments to respect budgetary discipline,” Trichet said in a speech in Vienna today. “We had a lot of difficulty with several governments during the last 10 years, both as regards their own national responsibilities and as regards their collegial responsibilities of peer surveillance. This period is over.” Europe’s currency slumped 8 percent this year against its major counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar appreciated 9 percent, while the yen advanced 11 percent. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, the European Commission in Brussels said today. Economists had forecast a confidence reading of 100.6, based on the median of 25 estimates in a survey. “Spanish bonds are already trading as if they were BB- so a downgrade to AA+ didn’t shake markets this time but it still reminds us of the problems in Southern Europe,” said Arne Lohmann Rasmussen, chief currency analyst with Danske Bank A/S in Copenhagen. The yen dropped today against currencies such as New Zealand’s dollar and Norway’s krone. An interest rate in Japan of 0.1 percent compares with 2 percent in Norway and 2.5 percent in New Zealand. ‘Unstable Situation’ Japan’s Social Democratic Party left the government after Hatoyama dismissed its only Cabinet minister, weakening the ruling coalition less than two months before parliamentary elections. Sixty-three percent of Japanese voters want Hatoyama to resign after he abandoned a campaign pledge to move the U.S. base, Nikkei English News said. “There is no reason to buy the currency of a country when the political situation is unstable,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at online currency- trading company Ueda Harlow Ltd. “The yen has never been bought for positive reasons but merely drew interest when risk aversion was strong.” Futures traders decreased bets that the euro will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. Euro Recovery The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 106,736 on May 25, compared with 107,143 a week earlier. Net shorts reached a record 113,890 on May 11. “From a purely technical viewpoint, it would not be a surprise if the euro rebounded at any time,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co., an investment advisory company. “But from a fundamental viewpoint, including lingering uncertainties over the depth of the sovereign crisis, there is no reason to believe that any rebound will be sustained.” Canada’s currency, called the loonie for the image of the aquatic bird on the C$1 coin, rose after a report showed the economic recovery quickened in the first quarter, backing the case for the central bank to increase interest rates. Gross domestic product expanded at a 6.1 percent annualized rate in the first quarter, beating the 5.9 percent median estimate of a Bloomberg survey. Bank of Canada Governor Mark Carney will raise the policy rate by 0.25 percentage point to 0.5 percent when policy makers meet tomorrow, according to a separate survey. The Canadian currency appreciated to C$1.0452 per U.S. dollar from C$1.0546 last week.

Source