Yen Advances on Speculation U.S. Banks Will Reveal More Losses

(Bloomberg) -- The yen gained against the euro and dollar for a second day on speculation U.S. banks will reveal additional losses, spurring demand for the Japanese currency as a refuge from the global financial crisis.

The yen rose versus all of the 16 most active currencies on concern the U.S. government will direct banks judged short of capital to say how they will raise extra funds, when it releases results of stress tests on May 4. The pound fell before a report that may show the U.K. economy shrank for a third quarter. Australia’s dollar dropped after the International Monetary Fund said the global recession will be deeper than previously thought.

“The results of the stress tests are likely to be a major concern for the markets,” said Masanobu Ishikawa, Tokyo-based general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Given such risk aversion, the yen and the dollar may be bought.”

The yen climbed to 126.99 per euro as of 12:05 p.m. in Tokyo from 127.48 in New York yesterday. The dollar gained to $1.2986 per euro from $1.3005. Japan’s currency advanced to 97.79 against the dollar from 98.01.

Australia’s dollar dropped to 68.88 yen from 69.14 yen yesterday, and New Zealand’s currency weakened to 54.20 yen from 54.43 yen. The pound declined to 141.38 yen from 142.05 yen.

The yen also advanced after Morgan Stanley, the fifth- biggest U.S. bank by assets posted a larger-than-expected loss yesterday, while Wells Fargo & Co. Chief Financial Officer Howard Atkins said “credit may not have turned yet.”

‘Far From Clear’

“While there is some improvement in profit trends at U.S. banks, it is far from clear if this positive flow will be sustained,” said Masashi Hashimoto, senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender.

The U.S. government would release a bank-by-bank assessment, while the lenders would say how they plan to shore up their finances, according to the person who spoke on condition of anonymity because a decision hasn’t been made.

The Washington-based IMF said in a forecast released yesterday that the world economy will shrink 1.3 percent this year, compared with its January projection of 0.5 percent growth. The IMF predicted expansion of 1.9 percent next year instead of its earlier 3 percent estimate.

The pound fell for a second day versus the yen as the Office of National Statistics may say today that the U.K. economy shrank 1.5 percent in the first quarter, after a 1.6 percent contraction in the fourth quarter, according to a Bloomberg survey of economists.

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