Euro Declines Against Yen Before Cyprus Lawmakers Debate Bailout

The euro fell against the yen before a debate by Cypriot lawmakers on legislation to unlock bailout funds as the threat of financial collapse in the island nation undermined demand for regional assets.

Europe’s shared currency headed for its biggest weekly drop in seven versus the dollar after the European Central Bank said yesterday it may cut off emergency funds to Cyprus’s banks unless a rescue plan is in place by March 25. The yen has risen at least 0.3 percent against all 16 of its major peers this week as concern that Europe’s debt turmoil may reignite spurred investor appetite for the safest assets.

“Cyprus is the key driver of markets and there’s a lot of uncertainty as we head into the weekend,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There are downside risks for the euro if an acceptable agreement is not found. The Cyprus developments are helping support demand for safe-haven currencies like the yen.”

The euro fell 0.7 percent to 121.60 yen at 9:04 a.m. London time, heading for a weekly drop of 2.4 percent, the most since July. It was little changed at $1.2902, set for a 1.3 percent slide since March 15. Japan’s currency rose 0.6 percent to 94.29 per dollar.

Euro-area finance ministers expect a proposal from Cyprus “as rapidly as possible” to raise the 5.8 billion euros needed to trigger the emergency loans, they said in a statement late yesterday after a teleconference. The race for a compromise comes after a week of tumult marked by Cypriot lawmakers’ rejection of a tax on bank deposits.

In Germany, the Ifo institute said its business climate index fell to 106.7 this month from 107.4 in February. The median forecast of economists in a Bloomberg News survey was for a rise to 107.8.

Europe’s shared currency has dropped 1.3 percent this month, making it the second-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after Norway’s krone. The yen has fallen 0.2 percent, while the dollar has risen 1.1 percent.

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