The yen declined for a second day against the dollar on speculation Japanese authorities may intervene to weaken the nation’s currency after it climbed to a seven-month high last week. The yen fell against all of its 16 major counterparts as technical indicators signaled its rally was overdone and on prospects importers sold the currency. The euro gained for a second day versus the yen and dollar on expectations stress-test results this week from European banks will ease concerns the region’s debt crisis is worsening. The Australian dollar snapped a three-day losing streak as gains in regional shares reignited demand for higher-yielding assets. “The strengthening of the yen has added to pressure on the BOJ to implement more reflationary policy,” said Mitul Kotecha, Hong Kong-based global head of foreign-exchange strategy at Credit Agricole CIB. “The risk is for a shift higher in dollar- yen in coming sessions from oversold levels.” The yen fell to 86.98 per dollar as of 1:53 p.m. in Tokyo from 86.69 in New York yesterday. It reached 86.27 on July 16, the strongest since Dec. 1. The euro rose to 112.79 yen from 112.19 yen, and to $1.2970 from $1.2942. The Australian dollar rose 1 percent to 87.70 U.S. cents, and 1.3 percent to 76.27 yen. The New Zealand dollar advanced 0.8 percent to 71.16 U.S. cents, and 1.1 percent to 61.89 yen. Relative Strength The dollar-yen’s 14-day relative strength index, a gauge that compares the magnitude of gains and losses, was at 29 yesterday, below the 30 threshold that some traders see as a sign an asset’s price has fallen too far and is poised to rally. The Bank of Japan may ease monetary policy if the yen stays around 85 against the dollar, Dow Jones Newswires reported yesterday. Central bank Governor Masaaki Shirakawa said last week a stronger yen and stock price declines may hurt the economy in the short term. The yen also weakened on speculation Japanese importers took advantage of its recent surge to sell the currency. “There’s talk that importers are selling the yen,” said Shinichi Hayashi, a dealer in Tokyo at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “The 86 yen level hasn’t been seen by them for a while, so they’re probably buying dollars.” Japan’s large manufacturers expect the yen to average 90.16 per dollar in the six months to March 2011, according to the Bank of Japan’s quarterly Tankan survey released July 1. Europe’s Stress Tests European regulators are examining the strength of 91 banks to determine whether they can survive potential losses on sovereign-debt holdings. Stress-test results will be released July 23. Spanish officials including Finance Minister Elena Salgado last week said they are confident about the results of the stress tests on Spanish banks. “Our bank credit analysts expect positive results and favor being long risk heading into the release of the European bank stress tests,” said David Forrester, a currency economist at Barclays Capital in Singapore. “For the euro, we expect an initial rally, but the most important change would be a reduction in the likelihood of a large downside move.” The Australian dollar strengthened as the nation’s S&P/ASX 200 Index of shares rose 1 percent and China’s Shanghai Composite Index advanced 1.5 percent. China’s commerce ministry today said domestic consumption will expand at a relatively fast pace and become the most important element of growth in the nation, Australia’s largest trading partner. The country may revise up its loan targets while investment project approvals may be eased by the fourth quarter, Qing Wang and Steven Zhang, Morgan Stanley economists, wrote in a note to clients. RBA Minutes “There’s talk about China ramping up the pace of infrastructure spending and toning down the severity of curbs on the property markets,” said Imre Speizer, a market strategist in Wellington with Westpac Banking Corp. “China growth means more demand for Aussie and kiwi commodities, supporting the currencies.” Reserve Bank of Australia officials said in minutes of their July 6 meeting released today they will use the results of this month’s European bank stress tests and local inflation figures due next week to decide whether to resume the most aggressive round of interest-rate increases in the Group of 20. The Canadian dollar gained for a second day against its U.S. counterpart on speculation the nation’s central bank will increase interest rates today. The Bank of Canada will raise its policy rate by a quarter- percentage point to 0.75 percent, according to all 20 economists surveyed by Bloomberg. Governor Mark Carney became the first Group of Seven central banker to lift borrowing costs on June 1, raising the benchmark to 0.5 percent. “We remain constructive on the Canadian dollar and expect to see further support coming through as the BOC looks likely to gradually tighten monetary conditions over the months ahead,” Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a research note yesterday. Canada’s dollar rose to C$1.0542 per greenback from C$1.0549 yesterday, when it advanced 0.3 percent. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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