Yen Trades Near 3-Month Low as Economic Slump Saps Haven Allure

Feb. 25 (Bloomberg) -- The yen traded near the lowest level against the dollar in three months as Japan’s weakening economy reduced the allure of the currency as a haven.

Japan’s currency may fall for a third day versus the dollar after the Ministry of Finance today said January’s trade deficit widened to the most since at least 1986. The greenback may slide for a second day against the euro after Federal Reserve Chairmen Ben S. Bernanke signaled the government won’t nationalize banks, eroding demand for the U.S. currency as a refuge from the financial crisis.

“The safe haven of the yen is in crisis due to the ongoing recession and the trade surplus that has become a deficit,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, a unit of France’s Credit Agricole SA. “Everyone is pessimistic about Japan and that’s really negative for the yen.”

The yen traded at 96.48 per dollar as of 10:26 a.m. in Tokyo, after touching 96.93 yesterday, the weakest level since Nov. 25. It was at 123.99 per euro after reaching 124.76 yesterday, the lowest since Jan. 9. Japan’s currency may fall to 100 per dollar by the end of March, Kato said.

The dollar was at $1.2848 per euro from $1.2846, after yesterday’s 1.2 percent decline. It weakened to $1.4516 against the British pound from $1.4481, and dropped to 1.1594 Swiss francs from 1.1601.

The Nikkei 225 Stock Average rose 1.3 percent and the MSCI Asia Pacific Index of regional shares climbed 1.1 percent as the yen’s fall to a three-month low against the dollar boosted the value of Japanese automakers’ overseas earnings.

‘Isn’t Necessary’

Japan’s trade deficit widened to 952.6 billion yen ($9.85 billion) in January from 320.7 billion yen in the previous month, the Finance Ministry said today in Tokyo. Economists forecast an increase to 1.2 trillion yen, according to a Bloomberg New survey.

Bernanke rejected the idea that officials plan to use reviews of banks’ balance sheets as a pretext for government takeovers of the nation’s largest lenders.

“I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said yesterday at the Senate Banking Committee hearing.

The ICE’s Dollar Index, which tracks the greenback against six major trading partners including the euro and the yen, traded at 86.813 from 86.895 yesterday as Bernanke’s remarks eased concern the Treasury’s capital-injection plan would hurt banks’ shareholders and lead to nationalization.

Option Contracts

Option contracts are signaling the yen may go from this month’s worst-performing major currency versus the dollar to one of the best, Societe Generale SA said.

The U.S. currency has fallen against the yen each of the five times since July 2007 that the premium on dollar puts over calls shrinks to about 2 percent. This technical indicator, which measures the price for the right to sell dollars relative to the right to buy them, may signal the yen is set to gain to 85 against the dollar, a 14-year high, said Yuji Saito, head of foreign-exchange in Tokyo at Societe Generale, France’s third- largest bank.