Tokyo, March 14 (Bloomberg) -- The yen fell on concern tumbling Japanesestocks will harm local banks by widening unrealized losses on their stockholdings. The yen fell to 120.13 per dollar from 119.69 yen in late New York tradingyesterday. Against the euro, it traded at 109.79, compared with 109.57 in NewYork. ``Concerns are very strong that falling stocks will cause Japanese banks'performance to deteriorate,'' said Hiroaki Yamano, deputy manager for foreignexchange at Nomura Securities Co. The Nikkei 225 stock average has declined 8 percent so far this month, closingyesterday at a 16-year low. The average failed to hold on to a 1.6 percent reboundearly today, closing up 0.2 percent at 11,843.59. Japanese bank stocks fell today to their lowest level since Oct. 19, 1998, wheninvestors worried major banks might collapse under bad loans. Banks are burdened with an estimated 33 trillion ($275 billion) of bad loans,according to the Financial Services Agency. Standard & Poor's Corp., which inFebruary stripped Japan of the ``AAA'' rating it had held for 26 years, said badloans may be as much as twice that, or equal to 12 percent of gross domesticproduct. The decline in stocks has also limited the yen's declines in recent weeks onspeculation losses in equities investments will pressure banks, insurers and othercompanies to repatriate more income from overseas operations and investments. ``Deteriorating Japanese asset values have spurred speculation Japaneseinvestors need to sell more foreign assets than expected before the fiscal yearends,'' said Yoji Hamada, an assistant vice president for foreign exchange atBank of America, N.A. Still, the yen's ascent will be limited on expectations the Bank of Japan will soonlower borrowing costs to near zero, cutting returns on yen-denominated deposits. ``I would say there is an about 70:30 chance that the BOJ policymakers will makethe move at meeting March 19, rather than at the next meeting April 13,'' saidNaomi Hasegawa, senior Japanese bond analyst with Standard & Poor's MMS inSingapore. The central bank cut the key rate 10 basis points to 0.15 percent inFebruary, six months after raising it to 0.25 percent from near zero. ``With a zero interest rate in sight, it is likely that investors will start so-called yencarry trade aggressively, which could push down the yen to near 130 per dollar,''said Yasuharu Tsuru, a foreign exchange manager at Mitsubishi Trust & BankingCorp. In zero interest rate days in Japan, many investors had borrowed yen at thelow lending rates and converted them into dollars to buy high-yielding securities.
ECB
The euro hovered near a two-week low against the dollar as accelerating Frenchand German inflation raised concern the European Central Bank won't soon cutinterest rates from 4.75 percent to spur economic growth. The central bank governing council will meet tomorrow to discuss interest ratepolicy. France said yesterday February consumer prices rose 0.3 percent,increasing 1.4 percent from the year-ago month. Prices in Germany rose 0.6percent last month after rising 0.5 percent in January, the government saidyesterday. The ECB aims to keep the zone's annual rate of inflation below 2percent. ECB council member and Bundesbank President Ernst Welteke told a Germanmagazine the ECB should wait before cutting rates because inflation in theworld's second-largest economic area still isn't under control. The euro recently bought 91.41 U.S. cents, little changed from 91.52 cents inNew York trading yesterday. In other trading, the dollar rose to 1.6836 Swiss francs from 1.6823 francs in lateNew York. The British pound was quoted at $1.4482, down from $1.4499yesterday.