The yen rose to a seven-week high against the dollar as signs the global economic recovery is slowing boosted demand for Japan’s currency as a refuge. The yen advanced to its strongest level in three weeks against the euro before reports forecast to show worsening sentiment in Europe and the U.S. The Swiss franc reached a record high against the euro on speculation the nation’s central bank will refrain from intervening in exchange markets amid signs deflation is easing. “As economic data worsens I’m not sure if policymakers will be able to strike a balance between economic growth and austerity,” said Kazuyuki Kato, treasury department manager in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second- largest publicly traded lender by assets. “The bias is for the yen to advance.” Japan’s currency rose to 88.73 yen per dollar as of 7:17 a.m. in London from 89.37 yesterday in New York. It touched 88.61 today, the strongest since May 6. The yen climbed as much as 1 percent to 108.62 per euro, the strongest since June 8. The euro declined to $1.2258 from $1.2277. It has fallen 3.2 percent in June against the yen, falling for a third month. The franc was at 1.3297 against the euro from 1.3344 yesterday. It earlier touched 1.3282 per euro, the strongest since the common currency’s 1999 debut. The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign funding. Weaker Confidence An index of executive and consumer sentiment in the 16 euro nations fell to 98.1 in June from 98.4 in May, according to a Bloomberg News survey of economists before the European Commission’s report today. The Conference Board’s confidence index in the U.S. dropped to 62.5 this month from 63.3 in May, a separate Bloomberg survey showed before the data today. “Worries over the durability of the U.S. rebound seem to be on the rise,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “It’s negative for the dollar.” Treasuries rose, pushing two-year yields to a record low. Advanced economies at a Group of 20 meeting in Toronto over the weekend agreed to halve deficits by 2013 while providing stimulus to support economic recovery. Swiss Deflation The Swiss franc strengthened, increasing its gains this quarter versus the euro to 7 percent. Deflationary tensions have “practically disappeared,” Swiss National Bank Governor Board member Jean-Pierre Danthine said in an interview with L’Agefi published yesterday. The SNB “would be able to react very quickly” if there was a need to increase interest rates, he told the newspaper. “These comments suggested the SNB wasn’t likely to intervene against a strengthening in the franc,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in research today. “The franc received a boost from” the SNB official’s remarks, he said. The euro headed for a third quarterly drop against the dollar and traded near the lowest level since 2008 versus the pound on concern regional banks will have to borrow at higher interest rates when they roll over loans that expire this week. Europe’s banks on July 1 owe the European Central Bank 442 billion euros ($542 billion) for 12-month loans. Euro Loans The ECB has reinstated unlimited three-month lending to provide banks with access to cash. The Bank for International Settlements said yesterday that European banks may struggle to refinance their debt if investor sentiment remains negative. “There are concerns that banks may have to pay higher borrowing costs at funding renewal, possibly hurting their profitability,” said Yuji Saito, director of the foreign- exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “It’s negative for the euro.” The single currency has lost 10 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar is up 6.8 percent, and the yen has advanced 13 percent. The euro was at 81.24 pence in Tokyo after touching 81.21 pence yesterday, the lowest level since November 2008. It has fallen 9.3 percent against the dollar since March 31, the most since the third quarter of 2008. The New Zealand dollar weakened after a government report showed home-building approvals declined in May. Permits declined 9.6 percent from April when they gained a revised 8.4 percent, Statistics New Zealand said, citing seasonally adjusted figures. “We’re seeing risk easing off with talk coming out about a double-dip recession,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland. “There’s a bias to the downside for both the Aussie and kiwi.” New Zealand’s dollar slipped 1.1 percent to 70.06 U.S. cents, and dropped 1.9 percent to 62.13 yen. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Source