Nov. 7 (Bloomberg) -- The yen rose against higher-yielding currencies on speculation global interest-rate cuts to stem a recession will make it less attractive to purchase overseas assets using funds from Japan.

The yen headed for weekly gains against the euro and the British pound after the European Central Bank and Bank of England lowered borrowing costs. Japan's currency was also buoyed as Asian stocks slumped, reducing investor appetite for so-called carry trades.

``The yen will be the beneficiary as the rate differential narrows,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``Equities are lower, because these rate cuts may have a limited impact. Risk aversion will also benefit the yen.''

The yen rose to 123.97 versus the euro at 1:09 p.m. in Tokyo from 124.29 late yesterday in New York and 125.30 at the end of last week. It gained to 97.29 per dollar from 97.75. The euro bought $1.2741, little changed from yesterday and last week. The pound traded at $1.5650 from $1.5627.

The yen may rise beyond 110 per euro and 90 against the dollar by year-end, Umemoto said.

The dollar headed for a weekly gain against the pound on speculation Democrat Barack Obama's sweeping victory in the U.S. presidential election will help him push through policies needed to revive the world's biggest economy. Obama beat Republican challenger John McCain in an election on Nov. 4.

Global Rate Cuts

The MSCI Asia Pacific Index of regional shares declined for a second day after the International Monetary Fund predicted the first simultaneous recession in the U.S., Japan and euro region in the post-World War II era. In carry trades, purchases of higher-yielding assets are funded in nations with lower rates. Japan's key rate of 0.3 percent is the lowest among major economies.

Against the euro, the yen rose 1.1 percent this week. Japan's currency headed for a 1.2 percent advance against the dollar. The euro was little changed against the greenback. The pound slid 2.6 percent against the dollar.

ECB President Jean-Claude Trichet said policy makers may lower rates further after cutting the main refinancing rate by a half-percentage point yesterday to 3.25 percent. The Bank of England slashed its benchmark rate by 1.5 percentage points to 3 percent, the biggest cut since 1992. The Bank of Korea today cut its key rate for the third time in a month.

Trichet on `Turmoil'

``These rate cuts highlight how serious the problems are that Europe and the U.K. are facing,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. ``The trend for the euro is to go lower. It may be some time before we see the pound form a bottom.''

The euro may fall to $1.25 and sterling may drop to $1.5280 in coming days, he said.

The ECB's rate-setting Governing Council discussed a reduction of 0.75 percentage point to support Europe's economy, Trichet said yesterday at a press conference in Frankfurt after policy makers met.

``The intensification and broadening of the financial turmoil is likely to damp global and euro-area demand for a rather protracted period of time,'' he said.

Economists predict the ECB will lower borrowing costs at the most aggressive pace in its 10-year history, reducing its target rate to 2.5 percent by April as growth falters.

Euro Weakness

Manufacturing orders in Germany, the euro region's biggest economy, dropped by a record 8 percent in September, a government report showed yesterday. The European Commission said on Nov. 3 that the region may be in a recession and the economy is likely to stagnate next year.

The Bank of England reduced its main rate to the lowest level since 1955 yesterday as the seizure in credit markets left Britain on the edge of its first recession since 1991. Signs the economy is faltering prompted a 50 billion pound ($77.8 billion) bank rescue package from the government.

``The implications are that the pound will remain soft,'' Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``The BOE has come out with an unusually large rate cut and maintained an extremely dovish stance.''

Payrolls Data

The dollar fell against the yen on speculation the world's largest economy is losing jobs.

U.S. payrolls fell by 200,000 last month, and the unemployment rate rose to a five-year high of 6.3 percent, according to the median forecast of economists surveyed by Bloomberg News. The report from the Labor Department is due at 8:30 a.m. in Washington. The economy contracted 0.3 percent in the third quarter, the biggest decline since 2001.

``Sentiment is already pretty grim as far as the labor market is concerned,'' said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration. ``It will take a huge surprise on the upside to provide some support for U.S. dollar sentiment.''

Japan will benefit from a strong yen because it will hold down prices for raw materials, said Eisuke Sakakibara, formerly the nation's top currency official.

``I still believe a strong yen is in the national interest of Japan, particularly in this situation when raw material prices will increase,'' Sakakibara said in an interview with Bloomberg Television in Singapore yesterday. The yen may rise to as high as 80 per dollar as carry trades unwind, said Sakakibara, who was dubbed ``Mr. Yen'' during his 1997-1999 tenure at the Finance Ministry because of his influence over currency markets.

The yen's 15 percent gain against the dollar this year and 32 percent advance versus the euro prompted Japan's government to announce last month it may buy or sell currencies to influence exchange rates.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net;

Last Updated: November 6, 2008 23:16 EST