Thursday, August 31, 2006

Yen May Fall to 155 per Euro, Bank of Tokyo-Mitsubishi UFJ Says

By Kosuke Goto

Sept. 1 (Bloomberg) -- The yen may weaken to a record 155 per euro in the next six months on speculation a slowing global economy will sap foreign-investor demand for Japanese stocks, according to Bank of Tokyo-Mitsubishi UFJ Ltd.

Concern higher global interest rates will slow world growth and curb risk appetite will harm Japan's equity markets more than Europe's, said Osamu Takashima, chief analyst for the global market sales and trading division for the bank.

``In the phase of global slowing, the euro reaps more benefit from investors reducing risk appetite than the yen,'' said Takashima at the unit of Japan's biggest lender by assets. ``The yen will continue to slide steadily against the euro.''

Japan's currency traded at 150.02 per euro at 12:40 p.m. in Tokyo, from 150.42 late in New York yesterday, when it fell as low as 150.73, the weakest since the euro's 1999 debut. Against the dollar, it traded at 117.22 from 117.40 yesterday.

Investment in Japanese stocks from overseas makes up about 70 percent of total foreign-fund inflow, while in the European region it accounts for no more than 50 percent, Takashima said.

``The inflow of foreign funds into European stock markets has been larger than we expected,'' Takashima said.

The Dow Jones Stoxx 600 Index, which tracks Europe's 600 largest listed companies, has advanced 8 percent this year. By contrast, Japan's Topix index, comprising 1700 stocks, has lost 1.5 percent.

`Strong Vigilance'

Europe's 12-nation currency is heading for a weekly gain against the yen and dollar on speculation faster economic growth will prompt the European Central Bank to keep raising interest rates. President Jean-Claude Trichet yesterday pledged ``strong vigilance'' on inflation, a phrase previously used to signal an imminent increase.

The ECB has raised rates four times since December, last lifting its refinancing rate to 3 percent on Aug. 3. The Bank of Japan increased the benchmark overnight lending rate to 0.25 percent from near zero percent on July 14 for the first time in six years.

Traders are increasing bets the ECB will raise rates twice more this year and the BOJ none.

``Japan's absolute interest-rate disadvantage still prevails, with the ECB heading for higher rates,'' Takashima said. ``This will weigh on the yen.''

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net ;

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