Yen Gains Against Major Peers Amid Global Slowdown Signs

The yen strengthened after Japan cut its economic assessment, underlining the fragility of the global economy and spurring demand for the safest assets.

Japan’s currency weakened against all except three of its 16 major counterparts as Asian and European stocks declined. The euro fell to the lowest in a week against the yen after a government report showed Spain’s recession deepened in the second quarter. New Zealand’s dollar dropped after dairy exporter Fonterra Cooperative Group Ltd. lowered its forecast payout to suppliers, citing the currency’s strength.

“It’s not a big surprise that Japan has cut its forecasts because growth is falling short of expectations in many countries,” said Simon Smith, chief economist at FXPro Group Ltd. in London. “The yen is doing pretty well.”

The yen climbed 0.2 percent to 98.27 per euro at 9:07 a.m. London time after appreciating to 97.89 yen, the strongest level since Aug. 20. Japan’s currency gained 0.2 percent to 78.58 per dollar. The euro gained 0.1 percent to $1.2508.

The yen will probably advance beyond 78 per dollar in the next four-to-six weeks, FXPro’s Smith said.

Japan’s Cabinet Office said risks to the economy include a “further slowing down of overseas economies and sharp fluctuations in the financial and capital markets,” according to a monthly report released in Tokyo. The government lowered its view on personal consumption, home-building, exports, imports and industrial output.

The MSCI Asia Pacific Index of shares dropped 0.5 percent, and the Stoxx Europe 600 Index slid 0.5 percent.

Spain Recession

Spain’s gross domestic product shrank 0.4 percent from the previous three months, after shrinking 0.3 percent in the first quarter, the Madrid-based National Statistics Institute said.

“The overall backdrop to the global economy remains mostly weak,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “The yen should outperform the euro.”

Europe’s common currency has depreciated 5 percent in the past six months, the biggest decline among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the best performer, rising 5.9 percent, and the dollar advanced 3.1 percent.

“Everybody wants to sell the euro,” said Satoshi Okagawa, a senior global-markets analyst at Sumitomo Mitsui Banking Corp. in Singapore. “I don’t expect a swift recovery” in the euro region’s economy, he said.

Spain is scheduled to sell as much as 3.5 billion euros of bills today, while Italy will auction zero-coupon and inflation- linked securities.

Dollar Index

The Dollar Index (DXY) snapped a two-day gain as investors weighed whether the Federal Reserve will embark on a third round of bond purchases, known as quantitative easing.

The gauge, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 81.62. The index dropped to 81.221 on Aug. 23, the lowest level since June 20.

Fed Chairman Ben S. Bernanke will speak in Jackson Hole, Wyoming, on Aug. 31 at an annual symposium hosted by the Fed Bank of Kansas City.

“The market may be open for disappointment” at Jackson Hole, said Derek Mumford, a Sydney-based director at Rochford Capital, a currency risk-management company. “Assuming there won’t be significant quantitative easing, then the U.S. dollar could have quite a strong performance in the next couple of months.”

Factory Index

The Fed Bank of Richmond will say today its regional factory index improved to minus 10 this month, from minus 17 in July, according to a Bloomberg survey of economists. A reading below zero signals contraction. A gauge of U.S. consumer confidence rose to 66 in August, from 65.9 last month, a separate survey showed before today’s Conference Board report.

New Zealand’s dollar weakened for a second day against the yen after Fonterra, the world’s largest dairy exporter, cut its forecast payout to farmers for the current production season.

The company will pay its 11,000 shareholders NZ$5.25 ($4.24) a kilogram of milk solids in the year ending May 31, 2013, down 13 percent from a year earlier, the Auckland-based company said in a statement.

The so-called kiwi declined 0.3 percent to 63.47 yen, and dropped lost 0.1 percent to 80.79 U.S. cents.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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