Sept. 15 (Bloomberg) -- The yen may fall against the euro and the dollar on speculation the Bank of Japan will delay interest-rate increases, prompting investors to seek higher yields overseas, according to Nomura Securities Co.

Investors have cut bets Japan's central bank will lift rates further, while adding to wagers the European Central Bank will boost borrowing costs at least twice more this year. The yen is heading for a fifth quarter of losses versus the euro after the yield advantage on two-year German bonds over like-dated Japanese debt this week reached the widest in more than 3 1/2 years.

``Japan's interest rates are likely to rise later rather than sooner, so there's demand for securities denominated in high-yielding currencies,'' said Shogo Nagaya, an executive director of currency trading at Japan's largest brokerage in Tokyo. ``It's a yen-selling factor.''

The yen traded at 149.65 per euro at 11:33 a.m. in Tokyo from 149.63 late in New York yesterday and a record low of 150.73 on Aug. 31. Against the dollar, it was at 117.67 from 117.59 yesterday. Japan's currency may decline to 155 against the euro and 120 versus the dollar by year-end, Nagaya said.

Optimism the Bank of Japan will refrain from raising rates anytime soon is encouraging Japanese to funnel funds into overseas assets, Nagaya said. The central bank's overnight lending rate is 0.25 percent, after the first increase in six years in July. The ECB's benchmark rate is 3.00 percent.

Minutes of Japan's central bank's Aug. 10-11 board meeting released on Sept. 13 showed policy makers will adjust rates gradually based on the economy and prices.

The government said in its monthly report released today that it was too early to say deflation was beaten, backing the case for Japan's central bank to hold policy steady this year.

Highest Since 1989

``Individuals and institutions are selling yen and buying assets denominated in foreign currencies,'' Nagaya said. ``There's ongoing demand for high-yield investment trusts.''

Total net assets of foreign-currency investment trusts in Japan reached 24.2 trillion yen ($205.6 billion) in August, the largest since 1989 when monthly data was first compiled by the Investment Trusts Association. Of the total, 4.3 trillion yen was invested in foreign equities and 16.9 trillion yen was allocated to foreign bonds. Two years ago, funds only had 8.6 trillion yen of assets in overseas debt.

The association includes 117 investment trust management companies and 11 securities companies.

`Constantly Pouring Money'

Japanese investors last month also bought a net 2.29 trillion yen in bonds outside Japan, almost triple the purchases in July, according to figures released on Sept. 13 by the Finance Ministry.

``The yen still looks bearish, as Japanese investors, both institutional and individual, are constantly pouring money into higher-yielding securities overseas,'' said Daisaku Ueno, a currency analyst in Tokyo at Nomura Securities. Ueno in March was named Japan's best foreign-exchange analyst in a survey conducted by Nikkei Research Inc., a marketing research company.

The rate gap between two-year German and Japanese bonds widened to 3.0380 percentage points on Sept. 12, the most since December 2002. It was at 3.0068 percentage points today.

The yield on three-month Euroyen futures for December delivery was at 0.540 percent today, down from 0.575 percent a week ago.

Interest-rate futures in Europe suggest traders expect the ECB to raise its main rate to 3.5 percent this year. The yield on the December contract was at 3.705 percent yesterday, up from 3.685 percent a week ago.

The contracts, traded on the London International Financial Futures Exchange, settle to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark rate since 1999.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net

Last Updated: September 14, 2006 22:34 EDT