By Gavin Finch and Yasuhiko Seki July 23 (Bloomberg) -- The yen and the dollar fell as U.S. stock-index futures advanced on speculation the worst of the recession may be over, prompting investors to purchase higher- yielding assets. Japan’s currency also fell the most in a week against the euro as futures on the Standard & Poor’s 500 Index rose 0.5 percent and Japanese financial companies prepared to raise at least 700 billion yen ($7.42 billion) for funds that will invest in international assets. The dollar slid the most against the Norwegian krone and Swedish krona. The pound traded near the highest level this month against the dollar. “We’re seeing high-yielding currencies still rallying along with stock markets,” said Geoffrey Yu, a currency strategist in London at UBS AG, the world’s second-largest foreign-exchange trader. “The market is reverting to business as usual. That’s just spurring risk currencies forward.” The yen fell 1 percent to 134.16 per euro as of 7:30 a.m. in New York. It dropped 1.1 percent to 15.025 per Norwegian krone, and slipped 1 percent to 12.462 per Swedish krona. The yen declined 0.7 percent to 94.37 versus the U.S. currency. The dollar was little changed at $1.4216 per euro. Japanese financial institutions are encouraging investors to put money into mutual funds focused on assets denominated in currencies such as the Turkish lira, South African rand and Brazilian real, according to data compiled by Bloomberg. Japanese investors were net buyers of 709.4 billion yen of overseas assets in the week ended July 11, figures from the Finance Ministry showed last week. Japan Exports Japan’s currency also declined after the Finance Ministry said the contraction in the nation’s exports slowed to 35.7 percent in June from a year earlier, from 40.9 percent in May. The trade surplus widened to 508 billion yen, the ministry said. “Japan’s trade data provided hard evidence that the global economy is now on the mend,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “As risk-sentiment improves on the back of receding wariness about the prospects of the global economy, the yen and the dollar will weaken against higher- yielding currencies.” The yen fell versus New Zealand’s dollar as the difference in yields between three-year New Zealand and Japanese bonds widened to as much as 3.45 percentage points today, the most since June 26. The yen slid 1.1 percent to 62.36 against the so- called kiwi. Benchmark Rates The benchmark interest rate is 0.1 percent in Japan, compared with 2.5 percent in New Zealand, 3 percent in Australia and 1.25 percent in Norway, encouraging Japanese investors to seek higher returns in those countries. The pound traded near the highest level this month against the dollar as U.K. retail sales increased a greater-than- forecast 1.2 percent last month and loan approvals for home purchases reached the highest level since March 2008. The British currency rose as much as 0.3 percent to $1.6545 before trading 0.1 percent higher at $1.6510. Sterling was little changed at 86.13 pence per euro. HSBC raised its pound-dollar forecast for the end of 2010 to $1.75, after previously saying its “fair value” through next year was $1.60. Indonesia’s rupiah approached the highest level in six weeks after the International Monetary Fund this month forecast developing economies in Asia will grow 7 percent next year from an estimated 5.5 percent in 2009. The MSCI Asia Pacific index of shares gained 0.4 percent, extending its advance to 9.1 percent since July 13. ‘More Appreciation’ “Asian currencies still have more appreciation to come,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “As economic growth, capital flows, and risk appetite improve, all these factors will continue to play favorably for Asian currencies.” The rupiah gained 0.5 percent to 10,035 per dollar, and Malaysia’s ringgit advanced 0.4 percent to 3.5400. Investors should sell the yen against the rupiah because of factors such as “valuation” and “carry,” according to Goldman Sachs Group Inc. “Valuation suggests that the yen is overvalued, while the rupiah is undervalued,” analysts led by Jim O’Neill, the global head of economic research at Goldman in London, wrote in a report today. “The cross is carry positive by about 7 percent over 12 months.” Goldman Recommendation Goldman Sachs recommended investors use three-month forward contracts to sell the yen at 108.60 versus the rupiah, with a target of 100. They also advised placing a one-day stop-loss order on any close above 112 in the spot market. The yen declined 0.9 percent to 106.60 per rupiah. Forwards are agreements in which assets are bought and sold at a price specified before the transaction date. A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level. The yen and the dollar also gained on speculation U.S. companies including CIT Group Inc. and American Express Co. will report weaker second-quarter earnings today, spurring demand for the relative safety of the Japanese and U.S. currencies. “Risk aversion is likely to stay prominent, given earnings announcements by companies including CIT,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The bias is for haven currencies such as the yen to be bought.” CIT said on July 21 it expected to post a loss of more than $1.5 billion for the second quarter, renewing concern the lender may have to file for bankruptcy. Morgan Stanley said yesterday its loss from continuing operations was $159 million compared with earnings of $689 million in the same period a year earlier. To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

Source