By Catarina Saraiva Sept. 7 (Bloomberg) -- The yen reached a 15-year high against the U.S. dollar as slowing economic growth increased demand for refuge assets and Japanese officials signaled their reluctance to halt the surge in the currency. Japan’s currency strengthened against all 16 of its most- traded counterparts as central bankers in Japan and Australia indicated that slower U.S. economic growth limits their policy options. The euro slid the most in more than two weeks against the dollar on weaker German factory orders and after the Wall Street Journal said European stress tests for banks understated some holdings of sovereign debt in the wake of Greece’s budget crisis. “This is a risk-off trade,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “The Wall Street Journal article, that really got everyone going back to a risk-off scenario that led to a lot of dollar-yen selling and yen buying.” The Japanese currency strengthened 0.5 percent against the dollar to 83.76 yen at 11:16 a.m. in New York after touching 83.52, the strongest since June 1995. The euro fell 0.3 percent to $1.2703, the most since Aug. 11, and dropped 1.9 percent to 106.43 yen. U.S. Economy Slows The U.S. unemployment rate is likely to approach 10 percent in coming months as the economy fails to grow enough to employ people rejoining the labor force, economist said. Private payrolls climbed 67,000 in August, after a gain of 107,000 the previous month, and the unemployment rate rose to 9.6 percent, the Labor Department reported Sept. 3. The median forecast in a Bloomberg News survey of economists called for an increase of 40,000. The economy expanded at a 1.6 percent annual rate in the second quarter, down from 3.7 percent in January through March. The Bank of Japan kept the benchmark overnight rate at 0.1 percent. Governor Masaaki Shirakawa and his board left its bank- loan facility at 30 trillion yen ($357 billion) after boosting the liquidity injections at an Aug. 30 emergency meeting. “It’s really not encouraging, you would expect them to emphasize something more,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “It just encourages more bullish positions on the yen.” The yen has strengthened 15 percent this year in the biggest gain among 10 developed-world counterparts as investors sought it as a refuge, Bloomberg Correlation-Weighted Currency Indices show. The gains have prompted policy makers to consider measures to curb the currency’s appreciation, which hurts Japanese exporters’ ability to compete. Aussie, Europe Spreads Australia’s dollar snapped a two-day gain versus the greenback after Prime Minister Julia Gillard clinched a deal with two independent lawmakers, allowing her Labor Party to retain government and pursue a tax on mining companies. The currency also weakened after the Reserve Bank of Australia said following a policy meeting that the global economic outlook remains “somewhat uncertain.” “Although markets were not pricing a rate hike at this meeting, strong economic data out of Australia since the previous monetary policy statement seem to have raised market expectations of a more hawkish statement,” Aroop Chatterjee, a currency strategist at Barclays Capital Inc. in New York, wrote in a note to clients. “Consequently, the relatively dovish statement had a slight negative effect on the Australian dollar.” Peripheral Bonds The Aussie, as the currency is nicknamed, fell 0.5 percent versus the U.S. dollar to 91.29 cents and declined 1.1 percent versus the yen to 76.41. Irish and Portuguese government bonds fell, pushing the yields on 10-year securities to records versus benchmark German bunds, on concern European banks are vulnerable to losses on their holdings of so-called peripheral euro-region debt. The German-Irish 10-year yield spread climbed to 380 basis points, the highest since Bloomberg started compiling the data, from 343 basis points. The Portuguese-German spread reached 355 basis points, also a record, from 333 basis points. The Greek- German 10-year yield spread reached 947 basis points. Pacific Investment Management Co. fund manager Andrew Bosomworth said yesterday Greece faces a “substantial” default risk when its bailout program expires in three years. To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net;

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