Dec. 12 (Bloomberg) -- The yen declined against all 16 of the world's most-active currencies on speculation Japanese investors will invest their winter bonuses in higher-yielding assets overseas.

The currency dropped the most versus the New Zealand dollar as finance companies in Japan prepare to sell the equivalent of $2.6 billion in mutual funds focused on offshore assets this week, according to data compiled by Bloomberg. The dollar fell against the euro as the Federal Reserve's quarter-percentage point interest-rate cut to 4.25 percent failed to ease concern that the U.S. economy is headed for recession.

``Winter bonuses will be paid out and retail investors may buy high-yielding assets,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second- largest bank. ``This should be supportive of foreign currencies against the yen.''

The yen weakened to 163.06 per euro as of 9:46 a.m. in London, from 162.14 late in New York yesterday, when it rose 1.3 percent. It also slipped to 111.05 against the dollar from 110.66.

The dollar fell against the euro to $1.4683 from $1.4655, the British pound climbed to $2.0416 from $2.0343 and the Swiss franc was at 1.1319 from 1.1309 before the central bank's interest-rate decision tomorrow.

Japanese Investors

Bank of America N.A., the second-biggest U.S. bank, estimated Japanese capital outflows in December will be as much $7.2 billion and cut its 2007 forecast for the yen to 110 per dollar from 108, according to a report published yesterday.

The yen declined to 110.04 against the Canadian dollar, from 109.02 yesterday. It fell to 226.82 versus the pound, from 225.11 and to 97.82 per Australian dollar, from 96.64. Japan's currency also weakened to 86.98 to the New Zealand dollar, from 85.54.

The Bank of Japan's key interest rate is 0.5 percent, making the yen a favorite funding currency for so-called carry trades to buy assets in countries such as New Zealand and Australia, where benchmark rates are 8.25 percent and 6.75 percent, respectively.

``Japanese investors don't have an attractive place to put money in Japan,'' said Tomoko Fujii, a senior economist and strategist at Bank of America in Tokyo. ``Without unwinding of the carry trade, there's no one who wants to buy the yen.''

Yield Spreads

New Zealand's two-year bonds offer a yield premium of 6.9 percentage points over similar-maturity Japanese debt and Australian notes have a spread of 5.92 percentage points. German bunds give an extra 3.17 percentage points.

The dollar declined against 13 of the 16 most-active currencies after the Fed acknowledged that economic growth is slowing while ``inflation risks remain,'' adding to concern the central bank won't be able to revive the world's largest economy.

``The dollar may be sold against European currencies,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The Fed statement shows policy makers don't have a clear idea where the U.S. economy is going, and this caught market participants by surprise.''

Interest-rate futures show 76 percent odds of no move from the Fed at its next meeting on Jan. 30 and a 24 percent chance of a cut to 4 percent.

The U.S. government may say on Dec. 14 that consumer prices increased at a 4.1 percent annual rate last month, the most since July 2006, according to the median estimate of 34 economists in a Bloomberg News survey.

The dollar also declined as the Fed reduction encouraged investors to use the currency to finance purchases of higher- yielding assets beside the yen and the Swiss franc.

``The dollar carry trade seems to be in vogue,'' said Yuji Saito, head of the foreign-exchange sales department in Tokyo at Societe Generale, France's third-biggest lender. ``There's some selling of the dollar,'' which may fall to $1.4740 per euro today, he said.

Qatar, China

The U.S. currency fell after the Asharq al-Awsat newspaper reported Qatar's central bank raised its reserve requirement for banks by 50 basis points to 3.25 percent. The increase shows there's strain on Qatar's currency peg to the dollar, said Lee Wai Tuck, a currency strategist at Forecast Singapore Ltd.

China, the second-largest foreign holder of U.S. Treasuries, said the declining dollar is a bigger concern for the Chinese economy than the yuan's gains.

``The dollar's depreciation makes major commodities such as gold and oil more expensive, and reduces the wealth of countries and companies that hold dollar assets,'' the acting Chinese commerce minister Chen Deming said today at the Strategic Economic Dialogue outside Beijing, after meeting with U.S. Treasury Secretary Henry Paulson.

The yuan rose to 7.3661 per dollar, the highest since the People's Bank of China ended the Chinese currency's fixed exchange rate to the dollar in 2005, and last traded at 7.3745.

Further Cuts

The yen also fell on speculation the Fed will have to lower borrowing costs again and pump liquidity into the money market to meet demand for funds at the end of the year. The U.S. central bank's statement showed policy makers are considering steps to ease credit in financial markets and haven't ruled out moves before their Jan. 29-30 meeting.

``It really doesn't matter how the Fed does it, but it will have to lower rates again,'' said Tetsu Aikawa, deputy general manager of the capital markets division in Tokyo at Shinsei Bank Ltd., Japan's eighth-largest publicly traded lender. ``This could help draw a line under the subprime problem and lure traders back to selling the yen.''

Japan's currency may fall to 113 against the dollar and 165 per euro this week, he said.

Norway Speculation

The Norwegian krone may extend its 3 percent advance against the euro this year on speculation the Norges Bank will raise interest rates to curb inflation, said Ashley Davies, currency strategist at UBS AG in Singapore, confirming a research note dated yesterday.

Norway's central bank will increase the deposit rate by a quarter point to 5.25 percent today, a Bloomberg survey showed, as the fastest economic expansion in 22 years fuels wages growth. Norges Bank announces its decision at 2 p.m. in Oslo.

Against the euro, the krone was at 7.9829, close to a three- week high, from 8.0077. It may gain to 7.9500 in one month and 7.8000 in three months, Davies forecast.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

Last Updated: December 12, 2007 04:50 EST