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Yen Drops Against Most Counterparts as Demand for Refuge Eases

The yen fell against most major currencies, sliding from near an eight-month high versus the dollar, amid speculation the Federal Reserve may consider more stimulus for the U.S. economy at its meeting tomorrow.

The dollar advanced from almost a three-month low against the euro on concern the greenback’s decline would be hard to sustain. The U.S. currency depreciated 1.7 percent last week as investors speculated a stalling economy may force the Fed to take action. Japan’s central bank meets tomorrow amid speculation it may move to damp the yen’s rise.

“Today is just overall more risk appetite,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. The Fed meeting “will be very closely watched because there is potential that there will be some more quantitative easing to kick-start the economy,” he said.

The yen depreciated 0.5 percent to 85.93 per dollar at 5 p.m. in New York, from 85.51 on Aug. 6. It reached 85.02 yen last week, the strongest since Nov. 27, when it touched levels last seen in 1995. The Japanese currency was little changed at 113.63 per euro, compared with 113.55 last week. The dollar gained 0.4 percent to $1.3222 per euro, from $1.3280 Aug. 6, when it declined to $1.3334, the weakest level since May.

Brazil’s real, Mexico’s peso and South Africa’s rand rose against all of their most-traded counterparts. The peso added 1.1 percent to 6.81 yen and the rand gained 1 percent to 11.96 yen as global stock advances encouraged carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.1 percent interest rate makes the yen popular for funding such transactions.

Fed Meeting

The greenback rose versus the euro for the first time in three days before the Federal Open Market Committee meets tomorrow. The seven-day relative strength index of the shared currency versus the dollar touched 71.3. Readings above 70 indicate an asset’s value may have risen too fast and be poised for a reversal.

“People are prudently reducing their dollar short positions ahead of the FOMC meeting -- it’s profit-taking,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “People have been selling dollars on the expectation that we would get quantitative easing, which is essentially the creating of dollars, which is positive for riskier assets.” A short position is a bet the price of an asset will fall.

‘Unusually Uncertain’

Speculation the Fed will restart its bond-buying program to support the economy has mounted since central bank Chairman Ben S. Bernanke said July 21 the outlook “remains unusually uncertain,” even as policy makers signaled they will probably pass on providing more stimulus at their meeting tomorrow.

U.S. nonfarm payrolls lost 131,000 jobs in July, the Labor Department said on Aug. 6, more than double the drop of 65,000 forecast in a Bloomberg News survey. Inflation excluding food and energy slowed to 0.1 percent in July, according to a separate survey before the Labor Department’s Aug. 13 report.

The Bank of Japan will probably keep its key rate unchanged at its meeting, according to all of the 16 economists in a Bloomberg survey.

Japanese policy makers are unlikely to boost asset purchases as the yen strengthens toward a 15-year high, Royal Bank of Scotland Group Plc said. The currency is likely to gain beyond 85 to the dollar unless the central bank acts, which “appears unlikely in the short term,” Greg Gibbs, a foreign- exchange strategist, wrote in a note to clients.

“A likely combination of the BOJ’s status quo and a dovish FOMC statement should keep alive negative sentiment for dollar-yen,” Tomoko Fujii, senior director and currency strategist at Bank of America Merrill Lynch in Tokyo, wrote in a note to clients today.

Stocks Gain

The Standard & Poor’s 500 Index increased 0.6 percent, and the MSCI World Index advanced 0.5 percent.

The pound traded near a six-month high against the dollar. Sterling gained as much as 0.3 percent to reach $1.5997 after touching $1.5999 on Aug. 6, its strongest level since Feb. 3.

Goldman Sachs Group Inc. cut its outlook for the U.S. and Japan, citing the likelihood of a “significant falloff” from stimulus measures and slowing export growth for Japan. The company reduced its full-year 2011 growth forecast for Japan’s real gross domestic product to 1.4 percent from 1.7 percent and trimmed its 2011 estimate for U.S. growth to 1.9 percent from 2.5 percent.

The euro’s rally from a four-year low in June resulted in losses for followers of bears from Paul Volcker to Dennis Gartman.

Since Volcker, the 82-year-old former Fed chairman, said May 13 the euro may face “disintegration,” it’s up 5.99 percent against the dollar. Traders who held off purchasing the common currency on June 18, when Gartman, 59, editor of the Gartman Letter, called it “doomed,” missed a 7.3 percent return. Buying on May 6, when European Central Bank President Jean-Claude Trichet said the euro was a “good store of value,” earned 5.28 percent.

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