By Yasuhiko Seki and Ron Harui Jan. 6 (Bloomberg) -- The yen fell against higher-yielding currencies as gains in Asian stocks and signs the global economy is improving spurred demand for riskier investments. Japan’s currency weakened versus 15 of its 16 major counterparts after the cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment dropped to the lowest level since May 2008. Australia’s dollar rose against the greenback and the yen as commodities, which make up more than half the nation’s exports, traded near 14-month highs. “We continue to see the case building for the yen returning to its role as a funding currency to a degree not seen since 2007,” said Greg Gibbs, a Sydney-based foreign-exchange strategist at Royal Bank of Scotland Group Plc. “With risk appetite still buoyant, as witnessed by further declines in CDS premiums, and strong emerging markets, we see more downside risk for the yen.” The yen fell to 84.16 per Australian dollar as of 6:18 a.m. in Tokyo from 83.63 in New York yesterday. It slipped to 12.345 against South Korea’s won from 12.435, after falling to 12.333, the lowest since October 2008. The yen declined to 92.05 per U.S. dollar from 91.71, and dropped to 132.14 versus the euro from 131.75. The euro traded at $1.4354 from $1.4365. The Australian dollar rose to 91.44 U.S. cents from 91.19 cents. Indonesia’s rupiah and South Korea’s won led gains in Asian currencies as the MSCI Asia-Pacific Index of shares rose 0.6 percent and the Nikkei 225 Stock Average advanced 0.5 percent. The rupiah climbed 0.6 percent to 9,306 per dollar, and the won strengthened 0.4 percent to 1,136.40. Improving Economy The Institute for Supply Management’s index of non- manufacturing businesses, which account for almost 90 percent of the economy, rose to 50.5 in December from 48.7 in November, according to a Bloomberg Survey before today’s report. A separate U.S. report today will show companies cut the fewest jobs last month since January 2008, a separate survey showed. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell two basis points to 88 basis points, the lowest since May 2008, ICAP Plc and CMA DataVision prices show. Credit-default swaps are used to protect bonds against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement. The yen also fell after a report from Kyodo News, citing an unidentified ruling party lawmaker, that the Japanese government decided to accept the resignation of Finance Minister Hirohisa Fujii, an advocate of a stronger yen, on grounds of poor health. ‘Negative Factor’ “If his resignation leads to declines in the support rating for Prime Minister Yukio Hatoyama or triggers political confusion, it may become a negative factor for the yen,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. Fujii, 77, told Hatoyama he wanted to step down, Kyodo reported today. While Hatoyama earlier asked him to stay, the government decided to accept the finance minister’s request because Fujii was adamant, Kyodo cited the lawmaker as saying. Demand for Australia’s dollar increased as gold, the nation’s third most-valuable raw-material export, rose 0.4 percent today. Crude oil, Australia’s fourth most-valuable commodity export, traded near a 14-month high in New York and copper futures on the London Metal Exchange gained to the highest since August 2008. The Reuters/Jefferies CRB Index of commodities yesterday closed at its strongest level since Oct. 14. Commodity Prices “The outlook for commodity prices in particular will be a key driver for sentiment toward the Aussie in coming months,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “Levels around 90 cents represent value.” Benchmark interest rates of 3.75 percent in Australia and 2.5 percent in New Zealand compare with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ assets. The risk in these so-called carry trades is that currency market moves will erase profits. The euro declined against 11 of the 16 major currencies on speculation the credit ratings of more European countries will be lowered. Iceland’s rating was cut to junk by Fitch Ratings yesterday after President Olafur R. Grimsson blocked a depositor accord with the U.K. and Netherlands that rating services had said was key to the island’s economic resurrection. Standard & Poor’s Ratings Services placed Iceland’s BBB-/A-3 foreign currency sovereign ratings on CreditWatch with negative implications. “There are growing sovereign credit risks in Europe which are likely to weigh on sentiment toward the region,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “The bias is for the euro to be sold.” To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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