Yen Weakens, Snaps 3-Day Gain, as Trade Deficit May Damp Demand

April 21 (Bloomberg) -- The yen declined for the first time in four days against the euro and the dollar before a government report tomorrow that may show Japan posted a trade deficit last month, damping the currency’s appeal.

Japan’s currency fell from a five-week high versus the euro as technical indicators showed recent gains were excessive. The euro climbed from the lowest in a month against the dollar on speculation a German report today will show investor confidence turned positive for the first time in two years. South Korea’s won slid the most in two weeks as widening U.S. credit losses tempered demand for emerging-market assets.

“The Japanese economy is in a terrible way and people are very pessimistic,” said Sean Callow, senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest bank by market value. “If we get much further deterioration in the trade position, it should be a yen negative.”

The yen dropped to 127.38 per euro as of 6:15 a.m. in London from 126.48 in New York yesterday. It gained 3 percent against the euro in the past week and earlier reached 126.09, the strongest level since March 16. Japan’s currency declined to 98.37 per dollar from 97.89, and weakened to 69.11 against Australia’s dollar from 68.20.

The greenback traded at $1.2952 per euro from $1.2921 yesterday, when it reached $1.2889, the highest level since March 16. The won fell 1.2 percent, the most since April 8, to 1,350.25 per dollar.

Trade Deficit

The yen weakened against 15 of the 16 most-traded currencies before Japan’s finance ministry releases its trade report in Tokyo tomorrow. The nation had a trade deficit of 27 billion yen ($275 million) in March, the fifth shortfall in six months, according to a Bloomberg News survey of economists.

The yen fell from a five-week high versus the euro as the European currency’s 14-day stochastic oscillator against Japan’s dropped to 11 today, below the 20 level that signals the euro may have fallen too quickly and is poised to strengthen.

“There’s a sense the yen has been overbought,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest bank. “Market participants are probably unwinding long yen positions.” A long position is a bet an asset will gain.