By Lukanyo Mnyanda Jan. 29 (Bloomberg) -- The yen declined against the dollar and euro on speculation officials are ready to counter its strength, while stabilizing stock markets reduced the appeal of the Japanese currency as a haven. The yen slipped from the strongest level since April against the euro and fell against higher-yielding currencies including the Mexican peso and New Zealand dollar as Bank of Japan Governor Masaaki Shirakawa said he’s ready to act against potential market turmoil. The euro traded within a cent of the weakest level in more than six months against the dollar amid concern that Greece’s fiscal problems will spread and as a report showed Europe’s unemployment rate increased. “Deflation continues to stalk Japan and a strong yen is going to make it worse, so the risk of them taking action is not something that can be ignored,” said Jeremy Stretch, a currency strategist in London at Rabobank International. “People may be taking a little bit of the risk aversion trade off the table, so euro-yen is squeezing up.” The yen depreciated to 90.21 per dollar as of 10:31 a.m. in London from 89.92 in New York yesterday. It was at 125.96 per euro from 125.63, after earlier trading at 124.82, the strongest level since April 28. The euro was little changed at $1.3962, after dropping to $1.3913, the weakest level since July 14. ‘Appropriate’ Bond Purchases Japanese policy makers are “prepared to act swiftly and decisively should concerns that financial market stability might be hampered re-emerge,” Shirakawa said at a business conference in Tokyo today, adding that the central bank’s monthly 1.8 trillion yen ($20 billion) of bond purchases are appropriate. Finance Minister Naoto Kan reiterated his call on the central bank to support an economy under threat from falling prices and a strengthening yen. The currency has gained against all 16 of its most-actively traded counterparts this year, fanning concern it will dent sales from abroad for companies such as Toyota Motor Corp. and Sumitomo Pipe & Tube Co. Europe’s Dow Jones Stoxx 600 Index gained 0.4 percent, snapping two days of declines. Futures on the Standard & Poor’s 500 Index were little changed after the U.S. stock benchmark fell 1.2 percent yesterday. Japan’s currency fell most against the Mexican peso and was 0.7 percent weaker at 6.93. It lost 0.5 percent against the New Zealand dollar to 63.70. Japan’s bond yields are close to the lowest level this year as signs that deflation will linger underpin demand for government debt. Policy makers, who held the benchmark interest rate at 0.1 percent this week, affirmed the economy will keep expanding while prices will fall through fiscal 2011. Greek Concern The euro headed for a third week of declines versus the dollar and yen after a week of declines in Greek bonds fueled by concern that the country can’t reduce its budget deficit without outside help. Greek bonds are the world’s worst performers in January, losing 6 percent, Bloomberg/EFFAS indexes show. Concern that Greece may struggle to meet its debt commitments comes amid evidence the region’s recovery from the recession is sputtering. The unemployment rate in the 16 countries that share the euro rose to 10 percent last month, from a revised 9.9 percent, the European Union statistics office in Luxembourg said today. The euro has fallen 5.3 percent versus the yen this year and 2.4 percent against the dollar. Portugal’s Deficit “The EU and the International Monetary Fund will ultimately be willing to provide some type of financial support for Greece,” buoying the euro in months to come, Jens Nordvig, a managing director for currency research at Nomura International Plc in New York, wrote in a report yesterday. Portugal needs deeper deficit cuts than included in its 2010 budget to avoid a credit downgrade, Moody’s Investors Service said in a report yesterday. The cost of insuring five- year Portuguese debt against default rose to a five-year high of 168.6 basis points yesterday, while the cost to insure Greece’s government bonds surged to a record 421.8. The German and French governments denied a report yesterday in the newspaper Le Monde that EU members are examining ways to provide assistance. Greek Prime Minister George Papandreou said the country doesn’t need to borrow from its neighbors. “Recent developments have led to a wholesale assessment of the euro-zone’s structural problems, especially as sovereign economic divergence widens,” Geoffrey Yu, a currency strategist in London at UBS AG, wrote in a note to clients today. “If fears of contagion become widespread, risk-averse investors could start to gun for even the larger or stronger euro-zone economies and their debt.” A technical analysis chart signals the euro’s slump versus the yen this month has been excessive. The European currency’s 14-day stochastic oscillator against the yen fell to 6.9 today, below the 20 threshold that indicates an asset price may have fallen too fast and is poised to strengthen. “The yen has been overbought,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is one reason why the currency is being sold a bit.” To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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