The yen rose to a record against the pound and gained versus the euro on speculation credit-market losses will widen after the U.K. increased aid to banks, curbing demand for higher-yielding assets funded in Japan’s currency. The British pound fell to the lowest level versus the dollar in more than six years on concern the U.K. government will have to take full control of Royal Bank of Scotland Group Plc after the bank yesterday forecast the biggest loss ever reported by a British company. The Australian and New Zealand dollars slumped against the yen as financial stocks led a decline in Asian shares. “Investors are risk averse given ongoing worries that credit losses will spread,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The markets are concerned whether the government can resolve this crisis. The bias is for the yen to be bought.” The yen climbed to 128.91 per pound as of 1:23 p.m. in Tokyo from 130.71 late in London yesterday. It reached 128.82, an all-time high. Japan’s currency rose to 117.42 per euro from 118.47, and advanced to 90.29 against the dollar from 90.64. Japan’s currency may gain to 125 per pound and 90 against the dollar today, Ishikawa said. The euro declined to a five-week low against the dollar before a German report today that economists say will show investor confidence fell for an 18th month. Euro, Pound Weaken The euro dropped to $1.3003 from $1.3069 late in London yesterday. It touched $1.2989, the weakest level since Dec. 10. The pound fell to $1.4277 from $1.4420, after touching $1.4248, the lowest since March 2002. Europe’s single currency advanced to 91.12 pence from 90.59 pence. Japan’s Nikkei 225 Stock Average slumped 2.7 percent and the MSCI Asia-Pacific Index of regional shares fell 2.3 percent. The U.K. currency weakened for a third day against the euro and a second versus the dollar before a government report today that will probably show the inflation rate fell in December, giving the Bank of England more room to cut interest rates. “There’s an incredible amount of weakness left in the U.K. economy that still needs to be priced in,” Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, said in a Bloomberg Television interview. “I do see further downside for the pound.” U.K. consumer prices rose 2.6 percent last month, the least since March, after a 4.1 percent increase in November, according to a Bloomberg News survey of economists. The Office for National Statistics will release the data at 9:30 a.m. in London. Record Loss The pound weakened versus 15 of the 16 most-active currencies today after RBS said yesterday it may post a loss of as much as 28 billion pounds ($39.8 billion) this year, surpassing Vodafone Group Plc’s 22 billion-pound net loss in 2006. The government said in a statement yesterday it will increase its stake in RBS as it converts the 5 billion pounds of preferred shares it bought last year to ordinary stock. “Sterling has struggled due to the announcement of the new policy measures, in addition to reports of big losses in the U.K. banking sector,” Ashley Davies, a currency strategist at UBS AG in Singapore, wrote in a research note today. “We continue to see bearish sterling views being expressed through the dollar.” The Bank of England this month reduced its benchmark rate to 1.5 percent, the lowest since the bank’s creation in 1694. Policy makers will probably cut the rate to 1 percent at their Feb. 5 meeting, according to the median estimate of economists surveyed by Bloomberg News. ‘Abrupt Appreciation’ “When the dollar-yen breaks 85, the Bank of Japan would be in the market to intervene” to sell the yen, Eisuke Sakakibara, a former top currency official at Japan’s Ministry of Finance, said in a Bloomberg Television interview. “This is just an indication of the fact that Japanese authorities are afraid of an abrupt appreciation of the currency at the time when the Japanese economy is in recession.” Australia’s dollar slipped 3.1 percent to 59.46 yen and New Zealand’s dollar declined 3.5 percent to 47.94 yen from late in Asia yesterday. Benchmark interest rates are 4.25 percent in Australia and 5 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to borrow in yen and buy higher-yielding assets elsewhere. In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher rates. The risk is currency market moves erase those profits. Germany’s ZEW The euro fell for a second day against the dollar as the ZEW Center for European Economic Research may say at 11 a.m. in Mannheim that its index of investor and analyst expectations was at minus 43.1 in January, from minus 45.2 the prior month, a separate Bloomberg survey shows. Europe’s single currency also declined for a second day versus the yen as the euro-area economy will likely shrink 1.9 percent in 2009 and will probably grow 0.4 percent next year, the Brussels-based European Commission said yesterday. “We still believe that these estimates are likely to be surprised on the downside,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note yesterday. “We expect the euro to remain under pressure.” BNP Paribas forecasts the euro will decline to $1.20 and to 94 yen by the end of June, according to the note.

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