Yen Trades Near 4-Month Low After Japan Companies Cut Spending

March 5 (Bloomberg) -- The yen traded near the weakest level in almost four months against the dollar after a government report showed Japanese companies slashed spending at the fastest pace in a decade, damping demand for the currency.

The euro may decline versus the greenback before a policy meeting where economists say the European Central Bank will lower its main refinancing rate to a record low 1.5 percent. The dollar gained versus 14 of the 16 major currencies before a Labor Department report tomorrow that may show the U.S. cut payrolls by 650,000 in February, the most since 1949.

“Recently the sensitivity is high to bad data so the yen will be under pressure and the risk is for the downside,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. “The yen bear trend will continue” and the currency may test 100 per dollar today, he said.

The yen traded at 99.01 versus the greenback as of 8:54 a.m. in Tokyo, after touching 99.49 yesterday, the weakest level since Nov. 10. It was at 125.18 against the euro from 125.52 late in New York yesterday. The dollar traded at $1.2643 per euro from $1.2661.

Spending by Japanese businesses on capital equipment excluding software slid 18.1 percent in the fourth quarter, the steepest decline since the three months ended Dec. 31, 1998, according to the Ministry of Finance. Economists surveyed by Bloomberg News forecast a 15.3 percent decline.

Monthly Loss

Japan’s currency fell 7.9 percent versus the dollar in February, the biggest monthly decline since August 1995, after reports showed the economy shrank last quarter by the most since 1974 and the trade deficit increased in January to the widest since at least 1980.

The ECB will cut its 2 percent target lending rate today by a half-percentage point to the lowest level since the 16- nation currency was introduced in 1999, according to the median forecast of analysts surveyed by Bloomberg News. The Bank of England will halve its main rate to 0.5 percent, according to a separate Bloomberg survey.

“The market is going to be paying close attention for any clue to further policy easing from the ECB,” said Omer Esiner, a senior analyst in Washington at Ruesch International Inc., a currency trading company. “That would actually be somewhat of a negative for the euro. It would highlight that the ECB once again has been late in addressing the downturn with aggressive policy.”