The yen and the dollar rose against higher-yielding currencies after a Japanese report showed the world’s second-largest economy shrank at a record pace, adding to concern the global recession will be prolonged. The yen also strengthened against 15 of the 16 of the most- traded currencies after an Australian report showed consumer confidence fell this month by the most since February. The euro dropped for a fifth day versus the pound on speculation a German report today will show producer prices dropped for a second month, giving the European Central Bank more reason to keep borrowing costs low. “The worldwide recession will probably persist, resulting in risk aversion,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest bank. “There’s no doubt that Japan’s GDP figures are the worst ever, so it’s too early to say the economy has bottomed out. The yen and the dollar are likely to be bought.” Japan’s currency advanced to 130.30 per euro as of 1:42 p.m. in Tokyo, from 130.81 in New York yesterday when it fell to 131.85, the weakest level since May 13. The dollar traded at $1.3615 per euro from $1.3630. The yen climbed to 95.68 per dollar from 95.97. Europe’s single-currency weakened to 87.90 pence from 88.07 pence. Australia’s dollar dropped 0.4 percent to 77.17 U.S. cents, and declined 0.7 percent to 73.83 yen. New Zealand’s dollar weakened 0.1 percent to 60.09 U.S. cents and lost 0.5 percent to 57.48 yen. Japan’s Economy The yen rose after Japan’s Cabinet Office said the economy shrank an annualized 15.2 percent in the three months ended March 31, following a revised 14.4 percent contraction the previous quarter. Gross domestic product fell 3.5 percent in the year to March 31, the most since records began in 1955. “Investors seem to be selling currencies against the yen because they see that the recent rally will not last forever,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. “The equity market and the Aussie dollar aren’t cheap anymore, and for these risk assets to gain further we need to have much better news on fundamentals or financials. For now, the market is becoming more sensitive to negative news.” Euro Weakens The euro weakened before a German report that economists say will show producer prices recorded the biggest annual decline in more than six years in April. Prices dropped 1.3 percent in April from a year earlier, the most since June 2002, after a 0.5 percent decline in March, according to a Bloomberg survey. The Federal Statistics Office will release the data at 8 a.m. in Wiesbaden. “The ECB is under ongoing pressure to do more to support the economy,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “That’ll keep a lid on the euro and therefore euro-yen. Euro-yen is one that we’ve been rather gloomy on recently.” Investors raised bets the European Central Bank will cut its 1 percent benchmark at the June 4 meeting. The implied yield on the three-month Euribor futures contract for June delivery fell to 1.14 percent today from 1.155 percent yesterday. The Australian dollar ended two days of gains versus the greenback and the yen after a survey by Westpac Banking Corp. and Melbourne Institute showed an index of consumer sentiment dropped 4.3 percent to 88.8 points. That marked a 16th consecutive reading of less than 100, indicating pessimists outnumber optimists. Yield Advantage The U.S. dollar may be bolstered versus the yen as the yield advantage of 10-year U.S. Treasuries over similar-dated Japanese debt remained near the widest in a week. The 10-year Treasury note yielded 3.23 percent today, 1.8 percentage points higher than the comparable-maturity Japanese government bond, according to data compiled by Bloomberg. The gap reached 1.82 percent yesterday, the most since May 8. “The recent rise in U.S. Treasury yields is positive for the dollar,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. The dollar may rise to 96.50 yen today, Kato said.

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