Yen Falls as S&P Maintains AAA Credit Rating for Bond Insurers

The yen fell to a two-month low against the New Zealand dollar after Standard & Poor's kept AAA debt ratings on the two largest U.S. bond insurers, encouraging traders to buy higher-yielding assets funded with loans in Japan.

The yen traded close to a six-week low against the euro after S&P maintained its ratings on MBIA Inc. and Ambac Financial Group Inc., encouraging so-called carry trades. New Zealand's dollar rose to the highest since being allowed to trade freely in 1985 against the U.S. currency on speculation accelerating inflation will prompt the central bank to keep its benchmark interest rate at a record of 8.25 percent.

``Stocks should be firm,'' said Hiroshi Yoshida, a foreign- exchange trader in Tokyo at Shinkin Central Bank, Japan's fifth- largest publicly traded lender by assets. ``I expect the yen to weaken.''

The yen fell to 88.12 against the New Zealand dollar, the lowest since Dec. 27, before trading at 88.04 at 9:36 a.m. in Tokyo from 87.71 late yesterday. Japan's currency was quoted at 160.32 per euro after touching 160.43 yesterday, the lowest since Jan. 15. The yen held at 108.08 per dollar, after declining 0.8 percent yesterday. The euro was little changed at $1.4833.

The yen fell to a three-month low of 100.35 against the Australian dollar and declined to 14.1435 per South African rand from 14.0949. The Nikkei 225 Stock Average rose 0.7 percent on confidence the two insurers will be able to guarantee debt and provide a AAA-ranking for $1.2 trillion of securities.

Rate Spread

The New Zealand dollar rose as much as 0.9 percent to 81.52 U.S. cents today, before trading at 81.44 U.S. cents. The New Zealand dollar may rise above the 23-year high should a central bank report today forecast inflation will remain above 3 percent in two years, said Alex Sinton, senior currency dealer at ANZ National Bank Ltd. in Auckland.

``We've seen a trend back to yield,'' said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. ``The central bank is unlikely to shift to rate cutting, and that's seen money flow back to the kiwi,'' she said, referring to New Zealand's dollar by its nickname.

Japan's benchmark rate of 0.5 percent, the lowest among industrialized nations, compares with 7 percent in Australia, 4 percent in Europe and 11 percent in South Africa.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher rates, earning the spread between the two. The risk is that currency moves erase those profits.

Business Confidence

Any gains for the euro may be limited before a report today that will probably show German business confidence probably fell to a two-year low in February. The Ifo institute's sentiment index slipped to 102.9 from 103.4 in January, according to the median of 45 forecasts in a Bloomberg News survey.

``I am bearish on the euro, as the European economy looks murky to me,'' said Kenichiro Fujita, manager of derivatives- marketing in Tokyo at Aozora Bank Ltd., Japan's ninth-largest publicly traded lender by assets. ``A slowdown in the U.S. will slow Europe's economic growth.''

The single currency may fall to $1.4780 against the dollar today, Fujita forecast.

The European Central bank will lower its main lending rate from a six-year high of 4 percent to 3.75 percent by midyear and to 3.5 percent by year-end, according to the weighted average of 24 forecasts in a Bloomberg survey.