Dec. 20 (Bloomberg) -- The yen traded near a six-week low against the dollar on speculation Bank of Japan Governor Toshihiko Fukui will signal today that interest rates will remain unchanged in coming months.

Japan's currency declined versus 11 of the 16 most-traded currencies this month as the nation's lowest borrowing costs among major economies encouraged investors to buy higher-yielding assets abroad. BOJ policy makers left the overnight lending rate at 0.5 percent today, a unanimous decision, as business confidence waned and the government slashed its growth forecast.

``With the economy very sluggish, Fukui won't be able to say anything hawkish about future rate increases,'' said Akihiro Tanaka, a senior currency dealer in Tokyo at Resona Bank Ltd., Japan's fourth-biggest publicly traded lender by assets. ``There is no buying catalyst for the yen.''

The yen traded at 113.20 per dollar at 2:47 p.m. in Tokyo from 113.43 in New York. It touched 113.60 on Dec. 14, the weakest since Nov. 7. The currency was at 162.70 per euro compared with 163.13 yesterday. Japan's currency may fall to 113.80 a dollar today, Tanaka forecast.

The yen dropped against eight of the 16 most-traded currencies this year, including the Australian, New Zealand and Canadian dollars, favorites for so-called carry trades because of the interest-rate premiums on offer.

Carry Trades

Japan's currency traded at 97.15 against Australia's dollar today from 97.43 yesterday and was at 85.42 versus the New Zealand dollar from 85.69. The U.S. currency was at $1.4374 per euro from $1.4383 and the British pound bought $1.9963 after yesterday falling below $2 for the first time since Sept. 20.

Bank of Japan board member Atsushi Mizuno rejoined his colleagues in voting for a rate hold after proposing an increase at each meeting since July. The central bank will publish its monthly assessment of the economy at 3 p.m. and Fukui will hold a news briefing at 3:30 p.m.

Borrowing costs are 8.25 percent in New Zealand, 6.75 percent in Australia and 5.25 percent in Canada. In carry trades, investors get funds in a country with low rates and buy higher- yielding assets elsewhere, earning the difference. The risk is that currency moves erode profits.

One-month implied volatility for the yen fell to 9.825 percent, from 10.125 percent yesterday. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Lower volatility may encourage carry trades, as it implies smaller exchange-rate fluctuation risk.

Fukui Briefing

Fukui probably won't be able to increase borrowing costs before his term expires in March, with 21 of the 31 economists surveyed by Bloomberg News predicting rates will stay on hold at least until the second half of 2008.

The dollar may be supported by speculation Japanese importers will buy the currency to settle month-end accounts. Many Japanese companies close their books on the fifth, 10th, 15th, 20th, 25th and the last business day of each month.

``Besides Gotobi, Japanese firms are in a rush to buy the dollar by year-end,'' said Yuji Saito, head of the foreign- exchange sales department in Tokyo at Societe Generale SA, France's second-largest bank by market value.

The U.S. currency may rise to 113.80 yen today, Saito said.

Third-quarter U.S. economic growth held at a 4.9 percent annualized rate, the Commerce department is forecast by economists to report today, the same as the initial estimate and faster than the previous quarter's 3.8 percent pace. Personal consumption will likely be revised higher. Both reports are due at 8:30 a.m.

Slowing Growth

A decline in the yen may be limited by speculation widening credit-market losses will prompt investors to pare purchases of higher-yielding assets on concern the world economy will slow. The currency has gained 5 percent versus the dollar this year, the best performance since 2003, as traders paid back yen loans.

Standard & Poor's yesterday cut the credit rating of New York-based bond insurer ACA Financial Guaranty Corp. to CCC, a level that suggests potential default, and placed Financial Guaranty Insurance Co.'s AAA rating under review for a possible downgrade. The rating cut affects more than $6 billion of bonds backed by the financial guarantor.

Signs of slowing global growth may cause traders to reduce carry trades, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co. Federal Reserve Bank of Richmond President Jeffrey Lacker said yesterday economic growth will be ``very weak'' into next year as the housing market is set to keep contracting.

The yen may rise to 97 per dollar by the end of 2008, Mizuno said. The median forecast of 45 economists in a Bloomberg survey is 110 per dollar by the end of next year.

``I expect growth to be very weak for several more months,'' Lacker said in remarks at the Charlotte Chamber of Commerce's Annual Economic Outlook conference in North Carolina. ``Most cogent risks to the outlook are on the downside.''

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net

Last Updated: December 20, 2007 00:51 EST