Yen Drops for Third Day on Concern Japan’s Economy Is Worsening

March 10 (Bloomberg) -- The yen fell for a third day before government reports that analysts say will show Japan’s recession is deepening, reducing the appeal of the currency.

The euro approached a two-month high against the yen on speculation European investors will bring home earnings on overseas assets before the end of the financial quarter. South Korea’s won gained for a third day versus the greenback, climbing from near an 11-year low, after overseas investors bought more of the nation’s shares than they sold.

“Japan’s economic data are poor and the political situation is uncertain, which all bode ill for the yen,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “There is a possibility of the yen testing 100 per dollar shortly.”

The yen dropped to 125.16 versus the euro as of 11:16 a.m. in Tokyo from 124.65 late in New York yesterday. The currency fell to 98.89 per dollar from 98.84. The euro climbed to $1.2657 from $1.2611.

The yen fell against all 16 of most actively traded currencies before a Cabinet Office report that will show the leading index of business conditions in Japan fell to 77.4 in January from 80 in December, according to a Bloomberg survey. The coincident index, which shows current economic activity, dropped to 89.8 from 92.4, according to a separate survey. The reports are due at 2 p.m. in Tokyo.

“The incoming data is likely to illustrate the vulnerability of the Japanese economy,” said Takashi Matsumura, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “The weak data will be yen-negative.”

Machine Orders

Japanese machinery orders slumped 40 percent in January from a year earlier, according to another Bloomberg survey before a Cabinet Office report tomorrow. The world’s second- biggest economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since 1974.

The won rose 1.2 percent to 1,530.30 per dollar, according to Seoul Money Brokerage Services Ltd. The currency has dropped 18 percent this year, after sliding 26 percent in 2008, and touched 1,597 on March 6, the lowest level since 1998.

“There are offshore players who are selling dollars for the won after an excessive overshoot in the exchange rate in recent weeks,” said Roh Sang Chil, a currency dealer with Kookmin Bank in Seoul. “Rising stocks are lending support to the currency market. From April, we’ll see the overall situation improving.”