Dec. 22 (Bloomberg) -- The yen may gain for the first day this week against the dollar after a government report showed Japanese export growth accelerated last month even as the currency rose to its strongest in almost five years.

Exports climbed at an annual rate of 13.4 percent in November after increasing 11.7 percent the previous month, easing concern the yen's appreciation may stall growth. Bank of Japan policy makers said the yen's climb to the strongest in almost five years hasn't hurt corporate profits, according to minutes of November's meeting released today.

``Foreigners are still convinced the Japanese economy will remain on track,'' said Carsten Fritsch, a currency strategist in Frankfurt at Commerzbank AG. ``Japan is still producing large current-account surpluses and that's a main contribution for the yen strengthening.'' He predicts the yen will gain to 98 in 2005.

The yen traded at 104.36 per dollar at 6:54 a.m. in New York from 104.35 late yesterday, according to electronic currency dealing system EBS. The dollar was at $1.3357 per euro, from $1.3372. The U.S. currency is down 5.9 percent against the euro and 2.7 percent versus the yen since the year began.

Japan's currency hasn't traded as high as 98 per dollar since 1995. It reached 101.83 on Dec. 2, the strongest since January 2000.

Trading Slows

Trading may be depressed by the approach of year-end holidays in most major financial markets, said Lee Ferridge, a senior proprietary trader in London at Rabobank Groep, the third- largest Dutch bank. Japanese markets are closed tomorrow and the U.S. has a holiday on Dec. 24. London markets are closed Dec. 27 and 28.

``Liquidity will really drop off this afternoon and into next week,'' said Ferridge. ``We're seeing at least half the volume'' of trading on a typical day. About $1.9 trillion is traded on the global currency market on average per day, according to the Bank for International Settlements.

The Japanese trade surplus narrowed to 602 billion yen ($5.77 billion) from 1.16 trillion yen in the same month a year ago as higher oil prices boosted imports.

The impact of the yen's gains on Japanese corporate profits isn't very serious, central bank policy makers said at their Nov. 17-18 meeting, minutes of the session showed. The officials also said further advances in the currency may affect profits and business sentiment.

`Turning Around'

``Japan's economy is turning around,'' said Thomas O'Malley, head of global currency portfolio management in San Francisco at Barclays Global Investors, with more than $1 trillion in assets. ``We're going to see further yen appreciation.'' Japan's economy contracted in the second quarter.

O'Malley said the below-average volume may also spark ``what appears to be irrational moves'' in currencies between now and Jan. 1 as individual orders are placed.

The euro may decline on speculation the European Central Bank will leave interest rates unchanged next year as euro-region economic growth stagnates.

The ECB won't raise its benchmark rate in 2005, Germany's Ifo institute President Hans-Werner Sinn said yesterday in Munich. Ifo lowered its growth forecast for Europe's largest economy by half a percentage point. The extra yield investors demand to hold 10-year U.S. Treasuries over their German counterparts is close to a four-year high.

``We are a little worried about Europe, and German consumption looks a real problem,'' said Benedikt Germanier, a currency strategist in Zurich at UBS AG. ``Interest-rate differentials are positive for the dollar right now,'' and may help drive it to $1.32 per euro within a month.

Dollar May Gain

``Looking into next year, an increasing yield advantage for the U.S. is going to work in favor of the dollar,'' said Yusuke Fujisawa at Dai-Ichi Kangyo Asset Management, which invests the equivalent of $17 billion. ``The U.S. economy will continue to outperform that of Europe,'' he said, predicting it may gain to $1.30 per euro next month.

ECB policy makers have kept their benchmark rate at 2 percent since June 2003. The Federal Reserve has raised its target interest rate by a quarter point five times this year, to 2.25 percent. Fed Bank of Richmond President Jeffrey Lacker said two days ago the central bank may lift the main rate ``fairly often'' next year. He doesn't vote on interest-rates until 2006.

The gap between the ECB and Fed benchmark rates may widen to as much as 2 percentage points next year, helping lift demand for the dollar, said Adam Myers, a currency strategist at Societe Generale SA in London.

``The last four or five days the cyclical story, i.e. a positive interest rate and inflation story, is starting to get slightly an upper hand,'' for the dollar, Myers said. Societe Generale forecasts the dollar will gain to $1.32 in three months.

Yield Gap

The difference in yields between 10-year German Bunds and U.S. Treasuries widened to 0.64 percentage points on Dec. 16, the highest since December 2000, according to data compiled by Bloomberg. The gap was 0.59 percentage points today.

A U.S. government report today may confirm the world's largest economy expanded at a 3.9 percent annual rate in the third quarter. The release is scheduled for 8:30 a.m. in Washington.

Losses in the euro may be limited as some traders expect the dollar to resume its slide against the European currency into 2005, said Ferridge at Rabobank. ``The market has got its eye on $1.35,'' he said.

The U.S. currency is heading for its biggest quarterly decline this year against the euro and the yen, dropping 7.2 percent and 5.4 percent respectively, on concern foreign demand for U.S. assets may wane.

Commerzbank advised in its morning research report today selling the dollar, with $1.35 per euro and 102 yen ``under threat once more.''

Federal Reserve Chairman Alan Greenspan said on Nov. 19 at the European Banking Congress in Frankfurt that foreign investors may tire of financing the U.S. current-account deficit and diversify into other currencies. The gap in the current account, the broadest measure of trade, was a record $164.7 billion in the third quarter.

To contact the reporter on this story: Jake Lee at jlee127@bloomberg.net

Last Updated: December 22, 2004 06:56 EST