Dollar Poised for Weekly Decline Against Yen on Slowing Economy

The dollar headed for a weekly loss against the yen before a private report that economists say will show U.S. consumer confidence fell to the lowest in more than two years.

The U.S. currency may decline for a fourth week against the Swiss franc after Federal Reserve Chairman Ben S. Bernanke said yesterday the bank is ready to take substantive additional action to help the economy, fueling speculation he will cut the benchmark interest rate at least a half percentage point this month. The yen has gained versus the 16 most-active currencies this week as a slump in global stocks caused investors to pull back from higher-yielding assets.

Dollar-yen is falling in the weak U.S. dollar environment and rising risk aversion, said Besa Deda, senior markets economist at St. George Bank Ltd. in Sydney. Bernanke's comments reinforce that the Fed is likely to cut by 50 basis points. There's a good chance of a U.S. recession.

The dollar traded at 106.81 yen at 10:38 a.m. in Tokyo, compared with 106.54 yesterday in late New York and 108.84 yen on Jan. 11. It touched 105.92 yen two days ago, the lowest since May 2005. The dollar was at $1.4626 per euro from $1.4642 yesterday and $1.4776 last week. It was at 1.1016 versus the franc from 1.1010 yesterday and 1.1014 last week.

The euro touched 155.70 yen, a four-month low, before trading at 156.16 yen from 155.99 yesterday and 160.79 on Jan. 11.

The dollar may decline to 106 yen today, Deda said.

Yen Gains

Japan's currency gained the most against the South African rand this week as concern that the U.S. economic slowdown will spill over to the rest of the world prompted investors to exit so-called carry trades financed with borrowed yen. The rand, which has been a destination for carry trades, was at 15.06 yen from 14.99 yesterday and 16.1 a week ago. It touched 14.95 yesterday, the weakest since Aug. 17.

Japan's 0.5 percent target rate is the lowest among the developed nations. South Africa's benchmark is 11 percent. The Standard & Poor's 500 Index lost 2.9 percent. With a 9.2 percent drop since Dec. 31, the index is off to its worst start to a year ever.

Carry trades are completely out of favor, said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney, in an interview with Bloomberg Television. `At the moment we're seeing a rise in risk aversion. The yen is benefiting.

The Reuters/University of Michigan preliminary index of consumer sentiment probably dropped to 74.5 in January from 75.5 in December, which was the lowest since October 2005, according to the median estimate of economists surveyed by Bloomberg News.

Outlook has Worsened

Bernanke reiterated that the outlook for growth in 2008 has worsened and the downside risks to growth have become more pronounced. In his testimony to the House Budget Committee in Washington, he also said a temporary fiscal stimulus of as much as $150 billion would help revive economic growth.

U.S. President George W. Bush will today lay out the general principles he favors for a short-term stimulus, Deputy Press Secretary Tony Fratto said yesterday.

Interest-rate futures on the Chicago Board of Trade showed a 100 percent likelihood the Fed will lower the target for the overnight lending rate between banks by at least a half- percentage point to 3.75 percent on Jan. 30. The chance of a cut to 3.5 percent this month was 44 percent.

The yen may pare its 3 percent gain versus the euro this week as technical charts which traders often use to judge price movements show the Japanese currency's advance to be excessive.

The euro's 14-day stochastic oscillator chart reached 6.3 today, according to data compiled by Bloomberg. A level below 20 suggests the euro has fallen too fast against the yen.

The yen has been overbought, said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. The market is pretty long the yen. There's a bit of yen-selling.

Stochastic oscillator charts measure the closing price of a security relative to its highs and lows during a particular period to try to predict a rise or fall.