By John Beresford-Peirse
The yen fell against the dollar after Japanese shares declined amid concern Enron Corp.'s bankruptcy filing will hurt banks and other finance companies.
The largest U.S. energy trader filed for Chapter 11 protection in a U.S. Bankruptcy Court in Manhattan yesterday. Japan's Nikkei 225 stock average fell 3 percent, led by UFJ Holdings Inc., after the filing left some of their funds with potential losses. The Topix bank index also shed 3 percent.
``Japanese banks had a big exposure to Enron,'' said Ian Stannard, a currency strategist at BNP Paribas. This has put ``a renewed stress on Japan's banking sector,'' which is weighing on the yen, he said.
Japan's currency weakened to as much as 123.74 yen per dollar from 123.20 late Friday, before trading at 123.65. Against the euro, the yen was little changed at 110.32 from 110.37.
The yen also fell on expectations a report due Friday will confirm the second biggest economy is in recession, analysts said. The government will probably say the economy shrank 0.7 percent in the third quarter, after contracting 0.7 percent in the previous three-month period, according to a Bloomberg News survey.

Yen Unattractive
``Japan's GDP report will reinforce the market recognition Japan's fundamentals are worsening,'' said Hideyuki Tsukamoto, a foreign-exchange manager at Fuji Bank Ltd. in Tokyo. ``That will prevent people from buying the yen,'' which may weaken to as much as 126.50 yen per dollar by the end of this month, he said.
The slumping economy may make it harder for borrowers to repay loans, heightening Japan's bad-debt worries, analysts said. Mizuho Holdings Inc., UFJ Holdings and six other Japanese banks wrote off about 2.3 trillion yen in bad loans during the April-to- September period, and said they still have about 20 trillion yen in problem loans on their books.
``With GDP numbers expected to be pretty bad, combined with weak stock prices and a massive amount of bad loans, the yen is by far the least attractive currency,'' said Naoto Ohnuma, senior manager of the foreign-exchange unit at Mitsubishi Corp. in Tokyo. ``Enron's bankruptcy will escalate concerns for financial institutions' credit risk problems.''
The yen may also weaken on speculation Moody's Investors Service will follow Standard & Poor's and Fitch IBCA Duff & Phelps in cutting Japan's credit rating, traders said.
The dollar, which fell 1.6 percent against the euro last week, was little changed at 89.39 U.S. cents from 89.61 Friday before reports that may fuel speculation the biggest economy will take longer than originally expected to recover.

Still Slumping
U.S. manufacturing probably declined for a 16th straight month in November, analysts said a National Association of Purchasing Managers factory index will show at 3 p.m. London time. A report Friday will probably show the unemployment rate rose to a five-year high in October. Signs of delay in a U.S. recovery may deter investors from buying some U.S. assets and the currency needed to buy them.
``The markets have been overoptimistic on the U.S. economy,'' which may weigh on the dollar, said David Mann, global markets economist at Standard Chartered Bank.
U.S. gross domestic product contracted more than expected in the third quarter, while Chicago-area manufacturing declined for a 14th month in November, reports last week showed.
That follows comments from other Fed officials that raised speculation the central bank may pare borrowing costs for an 11th time at its next scheduled meeting on Dec. 11.
Twenty-one of 23 economists at firms that trade directly with the Fed expect policy makers to trim the benchmark overnight rate a quarter-point at their Dec. 11 meeting to 1.75 percent, according to the Bloomberg News survey.
By contrast, neither the European Central Bank nor the Bank of England are expected to cut when they each meet to decide interest rates on Thursday and Wednesday, respectively.