By Kim-Mai Cutler and Stanley White Dec. 19 (Bloomberg) -- The yen strengthened, heading for a seventh weekly gain against the dollar, as stocks fell and investors bet any attempt by the Bank of Japan to rein in the currency will have limited success. The dollar was also poised for its biggest weekly loss against the euro since the 15-nation currency’s 1999 debut as the Federal Reserve cut its rate to a record low, reducing the appeal of U.S. assets. The yen, which reached a 13-year high against the dollar this week, rose even after the Bank of Japan lowered its benchmark rate to 0.1 percent from 0.3 percent and said it would buy commercial paper to boost corporate lending. “There’s still a flight to liquid, safe currencies and it would take a significant amount of intervention to stop that trend,” said Geoff Kendrick, a senior foreign-exchange strategist at UBS AG in London. “Stocks gave back gains pretty quickly after the rate cut so markets resumed what have been the broader trends this year.” The dollar fell to 88.62 yen as of 9:16 a.m. in London, from 89.43 yen yesterday in New York, on course for a 2.8 percent decline this week. It dropped to 87.14 yen on Dec. 17, the lowest level since 1995. The dollar traded at $1.4066 versus the euro, from $1.4240 yesterday, when it slumped to an 11-week low of $1.4719. The euro slid to 124.79 yen from 127.44 yen. Weekly Loss The dollar is down 5 percent against the euro this week after the U.S. central bank lowered the Fed funds target on Dec. 16 to a range of zero to 0.25 percent. The Fed reiterated plans to purchase agency debt and mortgage-backed securities and said it will study buying U.S. government debt. The U.S. currency gained 3.7 percent against the euro this year, 32 percent versus the British pound and 28 percent against the Australian dollar as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit. Treasuries rallied yesterday, pushing yields on 10- and 30- year securities to record lows as demand for the safety of principal outweighed prospects for record debt sales. U.S. government debt is headed for its best year since 1995, according to Merrill Lynch & Co. indexes. The BOJ said today it will raise monthly government bond purchases to 1.4 trillion yen ($15.7 billion) from 1.2 trillion yen in order increase liquidity in the financial system. ‘Little Impact’ “The measures announced today are likely to have little impact on the trajectory of the yen,” Lee Hardman, a London- based currency strategist for Bank of Tokyo-Mitsubishi, wrote in a note today. “We continue to maintain that narrowing yield differentials with Japan will continue to support further yen gains alongside elevated safe haven demand as the global economy remains in a deep and prolonged recession.” Japan’s currency appreciated about 25 percent against the dollar this year, the most since 1987, as more than $1 trillion of credit-market losses sparked a seizure in money markets and threw the world’s largest economy into a recession. The yen fell against the dollar and euro yesterday as Japan’s government signaled it may intervene in the foreign- exchange market for the first time in four years. Finance Minister Shoichi Nakagawa said at a news conference in Tokyo that he has “the means” to limit the yen’s rally. Central banks buy or sell currencies when they seek to influence exchange rates. Currency Intervention “In the near term, the BOJ rate cut may lower the chance of intervention, because upward pressure on the yen would have increased had they done nothing,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former BOJ currency trader. “Over the longer term, should the yen start rising again, then intervention becomes more likely.” Honda Motor Co. President Takeo Fukui described the yen’s level earlier this week as “abnormal” and called on the government and central bank to take “swift action.” Japan’s second-largest automaker cut its full-year profit forecast by 62 percent, citing a surging yen and falling sales in North America and Europe. The last time Japan intervened on its own, it sold a record 20.4 trillion yen in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen strengthened to 103.42 per dollar. Japan hasn’t bought yen since 1998, when it spent 3.05 trillion yen as the currency reached a low of 147.66. To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

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