March 29 (Bloomberg) -- The yen fell to a five-month low versus the dollar in Asia after Japan's government said the unemployment rate rose and household spending dropped last month.

Japan's currency is heading for its worst quarter in more than three years against the dollar on signs the economy's recovery from recession is faltering even as growth in the U.S. accelerates. A report on April 1 will probably show U.S. employers added more than 200,000 jobs for a second month.

``The Japanese economy is struggling to move out of a soft patch,'' said Tsutomu Soma, a currencies and derivatives trader in Tokyo at Okasan Securities Co. ``Japanese data don't look good enough to reverse the yen's weakening trend.''

Against the dollar, the yen fell to 107.38, the lowest since Oct. 22, before trading at 107.17 as of 10:23 a.m. in Tokyo, from 107.17 late yesterday in New York, according to EBS, an electronic currency dealing system. The yen may weaken to 112 per dollar in three months, Soma said. It dropped to 138.54 per euro from 138.18.

Household spending in Japan fell 3.8 percent from a year earlier, compared with a 2.6 percent gain in January, the government said in Tokyo. The median forecast of 29 economists surveyed by Bloomberg News was for a 3.5 percent decline. The government said the jobless rate rose to 4.7 percent in February from 4.5 percent in the previous month.

`Can't Expect Much'

A separate report showed Japan's retail sales dropped 2.7 percent in February as consumers trimmed spending, the Ministry of Economy, Trade and Industry said today in Tokyo.

``Rising unemployment suggests we can't expect too much out of consumer spending,'' said Kenichiro Ikezawa, who manages $1 billion in overseas debt at Daiwa SB Investments in Tokyo. ``A pick-up in the economy will be slow, weighing on the yen,'' which may weaken to 111 in a month, he said.

Demand for the dollar may wane against the euro after a technical indicator suggested the U.S. currency is poised to fall. The dollar traded at $1.2926 per euro, from $1.2897 yesterday, extending its rally from a record low on Dec. 30 to 5.8 percent.

Its 14-day relative strength index against the euro yesterday fell to 29.19, the lowest in seven weeks. The index is a gauge of momentum in a given period, and a level below 30 suggests a change in direction.

``After seeing the dollar strengthening so much, you can't help but feel the risk that a reversal is imminent,'' said Tetsu Aikawa, a currency sales manager in Tokyo at UFJ Bank Ltd. ``So any change in direction isn't surprising at all.'' The dollar may weaken to $1.2980 this week before resuming its rally, he said.

The dollar is being buoyed by speculation that more investors see the Federal Reserve raising rates at each of its meetings this year.

Fed Rates

The U.S. currency rose last week after policy makers lifted the target rate for overnight loans between banks to 2.75 percent from 2.5 percent and said ``pressures on inflation have picked up.''

Policy makers have raises the key rate 1.75 percentage points from 1 percent last year. The increases compare with a total of 1.75 percentage points the last time the Fed raised rates more than once. In the prior series of interest-rate rises, the Fed doubled its key rate to 6 percent.

The European Central Bank has kept its refinancing rate at 2 percent since June 2003. The Bank of Japan has kept borrowing costs at close to zero since 2001.

U.S. companies added 220,000 workers to payrolls this month, down from 262,000 in February, according to the median estimate of 66 economists in a Bloomberg survey. The two-month total would be the highest since the economy added 657,000 jobs in April and May of last year.

``We're looking at a substantial widening of the spread between the U.S. and the euro-zone,'' said Greg Salvaggio, vice president of capital markets in Washington at currency-trading firm Tempus Consulting. ``That is really making investors flock to the dollar.''

To contact the reporter on this story: Taizo Hirose in Tokyo at hirose2@bloomberg.net.

Last Updated: March 28, 2005 20:28 EST