Nov. 15 (Bloomberg) -- The yen declined against 10 of the 16 most-actively traded currencies as Japanese investors plowed cash into higher-yielding overseas assets.

Yen sales by Japanese individuals to purchase the Australian dollar and the British pound reached a three-month high yesterday, figures from the Tokyo Financial Exchange Inc. showed. Three mutual funds in Japan focused on foreign markets with the equivalent of about $5 billion in assets plan to start investing tomorrow, according to data compiled by Bloomberg.

``Investors are still interested in funneling funds offshore as interest rates are low'' in Japan, said Kenichiro Ikezawa, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``These flows are likely to contain the yen's appreciation.''

Japan's currency dropped to 163.45 per euro as of 6:25 a.m. in London from 163.07 in New York. It was little changed at 111.29 versus the dollar.

The dollar weakened to $1.4684 per euro from $1.4651 yesterday and to $2.0584 versus the pound from $2.0523 on speculation regional reports will show slower U.S. manufacturing.

The Japanese currency weakened 4 percent against the euro this year and 6.3 percent against Australia's dollar. Interest rates in Australia, New Zealand and the U.K. are at least 5.25 percentage points higher than Japan's 0.5 percent overnight rate.

Against the Australian dollar, the yen fell to 100.18 from 99.65. Japan's currency declined to 85.12 versus the New Zealand dollar from 84.92 and slipped to 229.12 a British pound from 228.48.

Portfolio Flows

Japanese investors bought 982.8 billion yen ($8.8 billion) in offshore assets in the week to Nov. 10 compared with 950.9 billion the previous week, the Ministry of Finance said today.

Net short positions on the yen against the Australian dollar, wagers Japan's currency will fall, rose to 43,276 contracts among retail investors and 22,340 contracts versus the pound, the highest since Aug. 15, according to Tokyo Financial Exchange figures.

``Investment trust funds are being set up tomorrow, so there seems to be some selling of the yen,'' said Nobuaki Tani, a client manager at Resona Bank Ltd., a unit of Japan's fourth- largest publicly traded lender. ``Higher-yielding currencies such as the Australian dollar and the euro are attractive.''

The yen may weaken to 164 per euro and 112 versus the dollar today, Tani forecast.

ECB, Inflation

The euro was poised to gain against the dollar for a third day on speculation the ECB will need to raise interest rates to keep inflation under control, narrowing the gap with the U.S.

Consumer price gains in the 13 countries that share the euro held at a two-year high of 2.6 percent last month, according to a Bloomberg survey before a report from the European Union's statistics office today. The currency advanced yesterday after the region's economic growth accelerated more than economists forecast in the third quarter.

``The European economy still relatively remains firm,'' said Satoru Ogasawara, foreign-exchange analyst and economist in Tokyo at Credit Suisse Group, Switzerland's second-largest bank. ``The euro is well supported in terms of the ECB's monetary policy.''

The euro may rise to $1.51 in three months, Ogasawara said.

U.S. Economy

Losses in the dollar may accelerate before reports today that economists predict will show growth in manufacturing in the New York and Philadelphia regions slowed in November, providing more evidence for a Federal Reserve interest rate cut next month.

The New York Fed's manufacturing index fell to 19 this month from 28.8 in October and the Philadelphia Fed's gauge dropped to 5 from 6.8, according to Bloomberg News surveys.

``Investors are very concerned that the U.S. economy may slow further,'' said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world's second-largest currency trader. ``The bias is still for dollar weakness.''

The dollar has weakened against 14 of the world's 16 most- active currencies this quarter as Fed Chairman Ben S. Bernanke acknowledged the worst housing market slump in 16 years will slow economic growth.

Interest-rate futures show a 72 percent chance the Fed will lower the target rate for overnight lending between banks a quarter-percentage point to 4.25 percent on Dec. 11, compared with 90 percent odds a week ago. The European Central Bank's key rate is 4 percent.

The currency tumbled to a record low on Nov. 7 against a basket of major currencies, including the euro and the yen, after Cheng Siwei, vice chairman of China's National People's Congress, said the Asian nation will invest in stronger currencies when diversifying its $1.43 trillion foreign reserves.

The U.S. dollar will remain the ``main currency'' in China's reserves, said Yi Gang, assistant governor of the People's Bank of China, speaking yesterday in Washington.

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

Last Updated: November 15, 2007 01:37 EST