By Keith Jenkins and Yoshiaki Nohara June 29 (Bloomberg) -- The yen reached its strongest level in eight years against the euro as signs the global economic recovery is slowing boosted demand for Japan’s currency as a refuge. The Japanese currency also climbed to a seven-week high against the dollar. It gained for an eighth day against the single currency, its longest run since January 2009, before a report forecast to show worsening sentiment in 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. “Concern about slowing growth momentum drives demand for safe-haven currencies, such as the yen and Swiss franc,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “The slowdown has a detrimental effect on the euro-zone economy and the euro. Safe-haven currencies should continue to perform strongly.” Japan’s currency rose to 88.65 yen per dollar as of 9:54 a.m. in London from 89.37 yesterday in New York. It touched 88.53 earlier, the strongest since May 6. The yen climbed as much as 1.9 percent to 107.82 per euro, the strongest since November 2001. The euro declined 0.7 percent to $1.2195. The franc was at 1.3286 against the euro from 1.3344 yesterday. It earlier touched 1.3250 per euro, the strongest since the common currency’s 1999 debut. The euro fell below 81 pence for the first time since November 2008, and traded later at 81.11 pence. The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign funding. Weaker Confidence The yen stayed lower even as European confidence in the economic outlook unexpectedly improved in June after the drop in the euro bolstered the region’s recovery. The Conference Board’s confidence index in the U.S. dropped to 62.5 this month from 63.3 in May, a separate 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. “There’s a strong correlation between short-term yield spread between the U.S. and Japan,” and near-term direction in dollar-yen, Hardman said. “That suggests dollar-yen may head towards the low 80’s in the next three to six months.” 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. The Swiss franc may extend gains that pushed it to a record against the euro amid speculation the risk of fueling inflation will discourage the central bank from selling the currency, Commerzbank AG said. Growth in money supply during May was “notable” and if the Swiss National Bank “continued its intervention this effect could be enhanced, causing medium-term inflation risks,” analysts led by Frankfurt-based Ulrich Leuchtmann wrote in a note to clients today. Swiss Recovery “The recovery in Switzerland is continuing so that the risk of deflation is hardly worth mentioning now,” he said. “As a result the downtrend in euro-franc is therefore likely to continue.” 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. 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 7 percent, and the yen has advanced 13 percent. --With assistance from Candice Zachariahs in Sydney and Matthew Brown and Lukanyo Mnyanda in London. Editors: David Clarke, Peter Branton. To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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