By Bo Nielsen and Yasuhiko Seki Jan. 5 (Bloomberg) -- The yen rose the most in four weeks against the dollar on speculation its 7.7 percent decline last month was excessive and as some of the nation’s exporters converted overseas earnings back into their own currency. The Japanese currency also advanced versus the euro, pound and Swiss franc as stock markets fluctuated between gains and losses. The South Korean won traded at a 15-month high against the dollar. The U.S. currency traded close to the lowest level in almost three weeks versus the euro as traders pared bets on the outlook for interest-rate increases by the Federal Reserve. “The big sell-off in the yen last month was a bit excessive and people are taking some of that back,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “But as global growth picks up during the course of the year so will the outflows from Japan and that will hurt the yen.” The yen strengthened 0.7 percent to 91.88 per dollar as of 10:30 a.m. in London from 92.50 in New York yesterday, the biggest gain since Dec. 8 based on closing prices. The Japanese currency appreciated to 132.64 per euro, from 133.34 yesterday, when it traded at 133.79, the weakest since Dec. 7. The dollar was at $1.4436 per euro, from $1.4413, after trading at $1.4484, the weakest since Dec. 17. Large manufacturers expect the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released last month. It will gain to about 90 per dollar in the next month before fading to about 95 by mid-year, Hardman said. Technical Chart The yen also rose against 15 of the 16 major currencies after people familiar with the matter said Sumitomo Mitsui Financial Group Inc. will decide as early as tomorrow to raise some 800 billion yen ($8.7 billion) to increase its capital base. “Talks of new share issues by SMFG added to the rising momentum of the yen,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. Declines last week drove the yen-dollar’s 14-day relative strength index to 31.04, close to the 30 level that typically indicates a change in direction is imminent. It was at 41.62 today, according to data compiled by Bloomberg. ‘Bottoming-Out’ The dollar fell versus the yen as futures trading in Chicago yesterday showed a 51 percent chance the Fed will increase its target rate for overnight bank loans by at least a quarter-percentage point by its June meeting, compared with 60 percent odds the previous working day. “The dollar is in a bottoming-out process, which may last months and be very volatile,” said Ian Stannard, a currency analyst with BNP Paribas SA in London. “The market is getting ahead of itself in pricing in rate hikes in the U.S.”. Fed Governor Elizabeth Duke said yesterday that inflation will likely be “subdued,” and expectations for prices should remain stable because parts of the economy will run below capacity. A Commerce Department today may show U.S. factory orders gained 0.5 percent in November after rising 0.6 percent the prior month, according to the median estimate of 58 economists in a Bloomberg survey. “The dollar has started 2010 on the back foot,” said Danica Hampton, senior strategist of markets at Bank of New Zealand Ltd. in Wellington. “Upbeat global data and buoyant equity markets have seen investors flock to growth sensitive currencies and away from the greenback.” Won’s Gains The won strengthened 1.2 percent to 1,140.50 per dollar after trading at 1,136.20, the strongest level since September 2008. The MSCI Asia-Pacific Index of shares climbed 1.1 percent. The Dow Jones Stoxx Index of European shares fell 0.1 percent “Korea will be on everyone’s mind when they look at Asia as an investment outlet in the New Year, with the region expected to outperform global growth,” said David Cohen, an economist at Action Economics in Singapore. “The Korean won should be one of the stronger performers.” To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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