The yen strengthened as Europe’s worsening debt crisis and speculation that a report today will show U.S. durable goods orders fell last month, bolstered demand for the relative safety of the Japanese currency. The euro headed for its biggest monthly decline against the yen in more than a year after the Financial Times reported yesterday that some euro-area countries want private creditors to take bigger writedowns on their Greek bond holdings. The euro strengthened against the dollar for a fourth day after the European Commission said it would present options on issuing common euro-area bonds in coming weeks. China’s yuan climbed on bets policy makers will allow currency gains to curb inflation. “The FT story has sparked off a bit of risk aversion and the yen is finding support from the safe-haven bid,” said Gavin Friend, a markets strategist at National Australia Bank Ltd. in London. “The focus is still very much on matters in Europe and the progress being made to resolve the debt crisis.” The yen strengthened 0.3 percent to 104.04 per euro at 9:04 a.m. in London, taking its advance this month to 5.6 percent, the steepest monthly gain since May 2010. The Japanese currency appreciated 0.5 percent to 76.41 per dollar. The euro rose 0.3 percent to $1.3619. Greek Prime Minister George Papandreou won parliamentary backing late yesterday for a property tax to meet deficit- reduction targets required to avoid default. Germany still privately anticipates that the Mediterranean nation will default on its debt as early as this year, Bild reported Chancellor Angela Merkel as saying at a meeting of Christian Democratic lawmakers, citing unidentified participants. Common Euro-Area Bonds Greece “will remain a member of the euro area,” European Commission President Jose Barroso told the Parliament in Strasbourg, France, today. Baroso’s comments were echoed by Germany’s Merkel who said in interview on state television that Greece belongs in the euro area. “The broad trend is still that concern over a global economic slowdown and uncertainty in the European debt crisis are leading to gains in the yen as a safe haven,” said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s third-largest listed bank. “Japanese exporters buying the yen at the end of quarter can explain the advance in the currency too.” Risk aversion stemming from the euro-area debt crisis may push the yen to as strong as 75 per dollar “within weeks” as investors continue to purchase the currency as a refuge from global market turmoil, National Australia Bank’s Friend said. Recession Concern Bookings for U.S. durable goods, which are meant to last at least three years, dropped 0.2 percent last month, according to a Bloomberg News survey of economists before today’s report. France’s statistics office confirmed that gross domestic product was unchanged in the second quarter from the preceding three-month period. That’s in line with the initial estimate reported last month. Most advanced economies are entering into a recession while the U.S. is already in the throes of an economic contraction, Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC, said in a panel discussion yesterday at the Bloomberg Dealmakers Summit in New York. The European Central Bank is likely to cut its benchmark interest rate, “with an increasing probability of a euro-zone recession unfolding in early 2012,” Robert Sinche, the global head of currency strategy for Royal Bank of Scotland in Stamford, Connecticut, wrote in a research note yesterday. “Reflecting this lower policy rate profile now expected from the ECB, we are lowering the euro-dollar forecast profile by 3 cents through the end of 2012.” ECB Rates The euro will finish this year at $1.33 and end 2012 at $1.41, the bank forecasts. The ECB, whose primary job is to fight inflation, raised rates twice this year, taking its benchmark to 1.5 percent. Europe’s one-year overnight-index swap rate, an indication of what traders expect the central bank’s key rate will average during the period, was 0.67 percent today, down from 0.77 percent at the start of this year. China’s yuan climbed after the People’s Bank of China set its daily reference rate at the strongest level since July 2005. The nation’s consumer prices rose 6.2 percent in August from a year earlier after a 6.5 percent increase in July. “Today’s fixing reflects China’s determination to tame inflation with a stronger currency,” said Edmond Law, deputy head of foreign exchange at BWC Capital Markets in Hong Kong. “The inflation slowdown in August was matched by the yuan’s gain for the same period. Yuan appreciation has proved useful in reining in prices.” The yuan strengthened to 6.3936 per dollar from 6.3992, the biggest gain since Sept. 16. To contact the reporters on this story: Garth Theunissen in London at gtheunissen@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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