March 12 (Bloomberg) -- The yen rose for a third day against the dollar after a government report showed Japan’s economy shrank less than analysts expected, easing concern the recession will worsen.
The euro may snap two days of gains against the greenback before a German report today that economists say will show industrial production dropped for a fifth month, giving the European Central Bank more room to cut interest rates. South Korea’s won and Australia’s dollar fell versus the dollar and the yen on speculation declines in Asian stocks boosted demand for the safety of the U.S. and Japanese currencies.
“Japan’s GDP report was better than expected, providing relief to the markets that the economy wasn’t deteriorating as badly as feared,” said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “This sparked buying of the yen.”
The yen climbed to 96.93 versus the dollar as of 10:45 a.m. in Tokyo from 97.27 late in New York yesterday. It earlier reached 96.70, the strongest since March 6. The currency advanced to 124.39 per euro from 124.86. The yen may rise to 96.60 per dollar and 122.50 per euro today, Uchida said.
The dollar traded at $1.2834 per euro from $1.2837 late yesterday in New York. The U.S. currency was at $1.3875 versus the British pound from $1.3874, and traded at 1.1528 Swiss francs from 1.1530 francs.
Japan’s GDP
The yen gained versus all 16 of the most-traded currencies after the Cabinet Office said Japan’s gross domestic product shrank an annualized 12.1 percent in the three months ended Dec. 31, less than the 12.7 percent reported last month. The median estimate of economists surveyed by Bloomberg was for a 13.4 percent contraction.
The yen and dollar also advanced as Japan’s Nikkei 225 Stock Average dropped 0.9 percent and the MSCI Asia Pacific Index of regional shares lost 0.6 percent.
“While recent news flows about U.S. banks may signal a potential bottoming out of the banking crisis, it is still premature to judge the financial crisis is over,” said Shinya Furue, an economist at Norinchukin Research Institute Ltd. in Tokyo. “It is difficult to expect increased buying of stocks or rising capital inflows into emerging-market currencies.”
South Korea’s won fell 0.9 percent to 1,483.40 per dollar, and dropped 0.9 percent to 15.26174 versus the yen. Australia’s dollar declined 0.4 percent to 64.94 U.S. cents, and weakened 0.8 percent to 62.92 yen.
German Output
Europe’s single currency fell for a second day versus the yen on speculation a German report today will show industrial output declined in January, putting more pressure on the ECB to lower borrowing costs.
ECB council member Erkki Liikanen said yesterday the central bank still has “room to move” after reducing the benchmark interest rate to 1.5 percent last week.
“The euro-zone economy will likely deteriorate further and the ECB will probably cut rates again,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-biggest bank. “The euro will eventually fall.”
The euro may drop to $1.27 and 123.50 yen today, Saito said.
Industrial output in Germany fell a seasonally adjusted 3 percent in January from the prior month, according to a Bloomberg survey of economists. The Economy Ministry will release the report at 12 p.m. in Berlin.
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