July 19 – The dollar may fall for a second day against the yen on speculation signs of weakening growth will reduce demand for U.S. assets.

The U.S. currency slid yesterday after the Federal Reserve lowered its estimate for expansion. U.S. reports today are forecast to show the economic outlook is worsening, while manufacturing slowed. A rise in oil to an 11-month high may push investors to reduce so-called carry trades, which involve borrowing in Japan to buy higher yielding assets elsewhere, adding to the yen’s advance.


“The market is in the mood to weaken the dollar,” said Stephen Halmarick, co-head of economic and market analysis in Sydney at Citigroup Australia. “There is worry building that the U.S. economy is underperforming the other major economies.”

The dollar traded at 121.96 yen at 9:59 a.m. in Tokyo after a 0.3 percent drop yesterday to 121.95. The U.S. currency was little changed at $1.3807 per euro and $2.0520 per pound.

The dollar yesterday dropped to a record low of $1.3833 per euro and $2.0548 per pound, the weakest since June 1981, as Bear Stearns Cos. this week told investors in two of its hedge funds they will get little if any money back after losses related to U.S. subprime mortgages.

The U.S. currency also fell to 87.88 cents per Australian dollar, the weakest since February 1989, and 79.47 cents per New Zealand dollar, the lowest since March 1985.

The Conference Board’s index of leading indicators, a gauge of U.S. growth over the next three to six months, probably fell 0.1 percent in June after a 0.3 percent gain a month earlier, according to the median forecast in a Bloomberg News survey. The Philadelphia Fed will probably say its index of the region’s manufacturing fell to 13.5 this month from 18 a month earlier, according to a separate Bloomberg survey.

Bernanke’s Testimony


Fed Chairman Ben S. Bernanke will appear before the Senate Banking Committee at 9:30 a.m. in Washington. The Fed chairman, who presents the central bank’s outlook to lawmakers twice a year, said in testimony to the House Financial Services Committee yesterday that a slump in construction will continue to “weigh” on growth, while core inflation may edge down.

The Fed is also scheduled to release the minutes of its June 28 policy meeting at 2 p.m. Washington time. Policy makers kept the benchmark rate at 5.25 percent last month. The rate compares with benchmarks of 4 percent in the euro zone, 5.75 percent in the U.K. and 0.5 percent in Japan.

The yen may be supported by speculation a climb in oil prices to the highest in more than 11 months will increase inflationary pressures in the world’s second-largest economy, backing the Bank of Japan’s case for raising interest rates. Japan imports virtually all its oil.

Rising Oil Prices

The currency may gain a second day against the euro on prospects higher borrowing costs may prompt investors to exit from risky trades funded by loans in Japan.

Twenty-three of 32 economists predict the central bank will increase the key rate to 0.75 percent next month, according to a survey released this week by the Economic Planning Association, a government-affiliated think tank.

“The surge in oil prices is feeding into inflation,” said Masashi Kurabe, currency manager at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “The BOJ may hike rates next month and again by year-end. There’s a risk for the yen to rise” to 121.50 against the dollar and 168.00 per euro today, he said.

Japan’s currency may extend this month’s 1.2 percent advance against the dollar as crude oil this week rose to $75.01 a barrel, and yesterday reached the highest closing price since Aug. 9, 2006. Oil has climbed 23 percent this year.

The yen traded at 168.38 per euro, after gaining about 0.2 percent yesterday. It dropped to a record low of 168.95 on July 13. The Japanese currency has declined against all 16 of the most actively traded currencies this year.