Jan. 12 (Bloomberg) -- The yen traded near a one-week high against the dollar on speculation European policy makers will press for stronger Asian currencies to narrow a U.S. trade deficit that last month helped the euro rise to a record.

A government report today may show the third-biggest U.S. trade deficit on record, according to a Bloomberg survey. A wider gap means more dollars must be converted to other currencies to pay for imports. The yen rose 1 percent yesterday after European Central Bank Chief Economist Otmar Issing said euro gains were excessive and the ``key to this problem lies with Asia.''

The yen traded at 103.34 per dollar at 9:03 a.m. in London, from 103.32 late in New York yesterday, according to currency- trading system EBS. It rose yesterday as high as 103.12, the strongest since Jan. 4. The yen was also at 135.30 per euro, from 135.47, after reaching 135.26, the highest since Nov. 25.

``European policy makers will want to put pressure on Asian currencies to appreciate against the dollar in the coming weeks,'' said Armin Mekelburg, a currency strategist at HVB Group in Munich. ``The yen will take most of the pressure and could gain to around 102.50 this week,'' he said.

Finance ministers and central bank governors from the Group of Seven major industrialized countries are scheduled to meet in London next month. The G-7 said in a statement on Oct. 1 that ``more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility.''

`Gone Too Far'

A strengthening euro may damp economic growth in the 12- nation euro region by making European exports more expensive. The European Union may confirm today that the region's economy grew 0.3 percent in the third quarter from the previous three months, down from a 0.5 percent growth pace in the second quarter.

``In the foreign exchange question, we've seen an adjustment at the European level happen and already gone too far,'' Issing said at a conference yesterday in Zurich. ``The key to this problem lies with Asia and especially in the hands of China.''

The euro rose 7.6 percent against the dollar last year, reaching a record $1.3666 on Dec. 30, outpacing the yen's 4.5 percent gain. The euro currently trades at $1.3090, from $1.3107 yesterday. Asian countries including Japan sold their currencies in the past year to stem gains. The ECB has never sold the euro.

``Issing's comments came as a potent reminder Asia eventually needs to take a bigger role in letting the dollar weaken,'' said Minoru Shioiri, senior manager of foreign exchange in Tokyo at Mitsubishi Securities Co., a unit of Japan's second- biggest lender.

``The yen and other Asian currencies probably stay first in line ahead of the euro to rally on bad U.S. trade data,'' said Shioiri. Japan's currency may gain to 102.60 against the dollar and 134.50 per euro today, he said.

U.S. Trade Gap

The U.S. trade deficit in November was probably $54 billion, according to the median estimate of 69 economists surveyed by Bloomberg News, which would be the third largest after a record $55.5 billion in October and $55.3 billion in June. The report is scheduled for 8:30 a.m. in Washington.

China, the second-biggest destination for Japanese exports, has kept its currency pegged at about 8.3 per dollar since 1995. The Bank of Japan, acting for the Ministry of Finance, sold 14.8 trillion yen ($143 billion) in the first three months of 2004, following record sales of 20.4 trillion yen in 2003, to help stem advances in the Japanese currency.

China risks inciting a backlash from U.S. lawmakers and businesses because of the fixed value of its currency, subsidies for state-run companies and curbs on imports, U.S. Commerce Secretary Donald Evans said today.

`Empower Critics'

``When China's leaders fail to produce results on the points of friction in our trading relationship, their failure only empowers those critics within the U.S. political system,'' Evans said in a speech to the American Chamber of Commerce in Beijing. Treasury Secretary John Snow said on Jan. 10 that China will probably be invited to attend next month's G-7 meeting.

The deficit in the U.S. current account, the broadest measure of trade, reached a record $164.7 billion in the third quarter, meaning the U.S. needs to attract $1.8 billion from foreigners every day to prevent the dollar weakening.

``There is hardly anybody who believes that something like this can be maintained in the long run,'' Issing said. ``The deficit is a problem of the U.S., but it's also our problem.''

Toyota

Japanese manufacturers, including Toyota Motor Corp., are preparing to boost production overseas to limit the impact of currency fluctuations.

Toyota, the biggest Asian maker of vehicles in North America, seeks to raise its production there to represent as much as 75 percent of regional sales, from 63 percent, said President Fujio Cho in an interview at the North American International Auto Show in Detroit.

A smaller U.S. trade deficit may support the dollar on expectations the U.S. economy will grow fast enough for the Federal Reserve to continue raising interest rates, said John Kyriakopoulos, a currency strategist in Sydney at National Australia Bank Ltd.

A number below $55 billion ``will signal that perhaps the trade deficit in the U.S. has topped out for the moment,'' he said. ``If we print a number above $55 billion, the dollar will weaken.''

The Fed lifted its target for overnight loans between banks five times last year, to 2.25 percent from 1 percent. The rate exceeds the ECB's benchmark rate, now 2 percent, for the first time since 2001.

To contact the reporter on this story: Rodrigo Davies in London at rdavies13@bloomberg.net.

Last Updated: January 12, 2005 04:09 EST