By Inyoung Hwang and Lukanyo Mnyanda Jan. 25 (Bloomberg) -- The yen dropped against all of its most-traded counterparts on speculation Federal Reserve Chairman Ben S. Bernanke will be confirmed for a second term, spurring demand for higher-yielding assets. Japan’s currency also slid for the first time in eight days against the euro after people with knowledge of the matter said the nation’s central bank is prepared to consider expanding an emergency-loan program for banks. The yen got a boost last week as support for Bernanke wavered among lawmakers. “As we got more assurances about Bernanke’s appointment, it eased risk aversion,” said Meg Browne, vice president of foreign-exchange research at Brown Brothers Harriman & Co. in New York. “Removing him creates another level of uncertainty. Who would be in power and what would it do to monetary policy and banking regulation?” The yen depreciated 0.6 percent to 127.78 per euro at 9:03 a.m. in New York, from 126.98 on Jan. 22, when it posted a 2.8 percent weekly rally. The yen weakened 0.5 percent to 90.30 per dollar, from 89.82. It traded at 89.79 on Jan. 22, its strongest level since Dec. 18. The dollar traded at $1.4146 per euro, compared with $1.4139, after appreciating to $1.4029 on Jan. 21, its strongest level since July. President Barack Obama “is very confident” Bernanke will be confirmed, David Axelrod, a senior White House adviser, said on CNN’s “State of the Union” program. Senate Republican leader Mitch McConnell said on NBC’s “Meet the Press” that Bernanke will have “bipartisan support in the Senate.” Bernanke’s Prospects Mounting opposition to Bernanke’s reappointment from senators including John McCain and Russ Feingold helped push U.S. stocks lower last week on concern that uncertainty at the Fed may risk prospects for an economic recovery. Japan’s central bank will leave interest rates and its lending program unchanged tomorrow, according to 16 of 17 economists in a Bloomberg survey. How the Bank of Japan responds in coming months will depend on the extent of any further economic shocks, such as a surge in the yen to November’s 14-year high, said people familiar with the central bank’s plans, who spoke on condition of anonymity. “If deflation pressures continue to build, there’s going to be more political pressure on them to act,” driving the yen’s move, said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. Fed Rate View Fed officials will do their part to spur growth by keeping interest rates at almost zero after their two-day meeting this week, economists forecast in a Bloomberg survey. Policy makers, who meet Jan. 26-27, may reiterate their pledge to hold rates “exceptionally low” for “an extended period.” Futures trading on the CME Group exchange showed a 19 percent chance that the Fed will raise its target rate for overnight bank loans by at least a quarter-percentage point by its June meeting, down from 26 percent odds a week earlier. Sales of existing homes in the U.S. dropped to a 5.90 million annual rate in December from 6.54 million in the prior month, according to the median estimate of 61 economists in a Bloomberg News survey. The report from the National Association of Realtors is due at 10 a.m. New York time. Australia’s dollar rose 0.9 percent to 81.66 yen and New Zealand’s currency climbed 1 percent to 64.38 yen. Benchmark interest rates as low as zero in the U.S. and 0.1 percent in Japan compare with 3.75 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations’ assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits. U.S. Equities U.S. stock-index futures gained, indicating that the Standard & Poor’s 500 Index will rebound from its biggest three- day decline since the rally that began in March. Futures on the S&P 500 expiring in March advanced 0.7 percent. Strategists cut forecasts on sterling versus the dollar by as much as 2 percent this month to the lowest since June, according to forecasts compiled by Bloomberg. The pound may be the loser no matter who prevails in this year’s election between Prime Minister Gordon Brown and opposition leader David Cameron because the next government may not have enough support in parliament to rein in the Group of 20’s biggest budget deficit. Sterling advanced 0.2 percent to $1.6146 and increased 0.2 percent to 87.58 pence per euro. To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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