The yen and the dollar rose against the euro on speculation European finance ministers will today reiterate the global recession is far from over, spurring demand for the relative safety of the U.S. and Japanese currencies.

The yen advanced as the MSCI World Index declined for a fourth day, prompting investors to reduce holdings of higher- yielding assets. The euro dropped after Luxembourg Finance Minister Jean-Claude Juncker said at a meeting of regional counterparts yesterday that “we are still in the middle” of the worldwide financial crisis. The pound fell after the British Chambers of Commerce recommended the Bank of England expand its asset-purchase program to revive the economy.

“Investors aren’t confident about the growth outlook as an improvement in some leading indicators isn’t backed up by hard economic data,” said Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “We are in more risk-averse environment, especially ahead of the earnings season. Yen is a currency of choice against this backdrop.”

The yen strengthened to 132.39 per euro as of 8:47 a.m. in London from 133.34 in New York yesterday, when it advanced to 131.74, the highest level since June 23. The dollar climbed to $1.3917 per euro from $1.3984, after yesterday reaching $1.3877, also the strongest since June 23. The dollar slipped to 95.16 yen from 95.35.

Japan’s currency may strengthen to 94.60 per dollar today, according to Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. The yen typically rises in times of financial turmoil because Japan’s trade surplus reduces the nation’s reliance on overseas lenders.

Volatility Rises

The yen also rose as stocks in Asia and Europe fell and the VIX Index of volatility climbed. The MSCI World Index of shares dropped 0.1 percent. Standard & Poor’s 500 Index futures slipped 0.6 percent. The VIX Index, a measure of market volatility known as Wall Street’s fear gauge, rose to as much as 30.60 yesterday, the highest since June 23.

“Equity markets are continuing the decline started at the end of last week, while the VIX Index is also starting to rebound,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a client note yesterday. “The yen is the major beneficiary of the current shift in market sentiment.”

The yen will strengthen to 126 per euro and to 93 per dollar by the end of September, BNP Paribas predicts, compared with previous estimates of 138 and 96, respectively.

Juncker’s comments in Brussels yesterday came after the Organization for Economic Cooperation and Development said last month signs of a recovery in the 16-nation euro area were not clear. The OECD cut its 2009 forecast for the region’s economy to a contraction of 4.8 percent, from a decline of 4.1 percent projected in March, and said the ECB should lower its benchmark interest rate.

‘Lingering Worries’

European Union finance ministers meet again today in Brussels. The Eonia overnight index average, the market rate that European banks charge each other, fell to 0.332 percent yesterday from 0.381 a week ago, below the ECB’s benchmark.

“It’s not only lingering worries about the prospect of the euro-zone economy that are hurting sentiment toward the euro, the narrowing yield advantage, as evident by declines in Eonia are also weakening demand for the single currency,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., a unit of Japan’s second-largest bank.

Euro-area economic activity this year “is likely to remain weak, but should decline less strongly than was the case in the first quarter,” European Central Bank President Jean-Claude Trichet said July 2, when policy makers left the benchmark rate at a record low of 1 percent.

G-8 Meeting

Demand for the dollar was tempered by speculation its role as the world’s reserve currency may be questioned at a Group of Eight meeting starting in L’Aquila, Italy, tomorrow.

“We need to be alert to the possibility of the G-8 actually making this issue an official agenda item,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan’s third-largest banking group. “This will keep a cap on the dollar.”

Russia said the world economy is overly reliant on the dollar and called for changes in how $6.5 trillion in currency reserves are managed. “The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Dmitry Medvedev said in an interview with the Italian newspaper Corriere della Sera, repeating his proposal for a new international reserve.

Australia’s dollar fell against the yen and the dollar as the Reserve Bank of Australia kept its key interest rate unchanged for a third month to stimulate the economy.

The central bank, led by Governor Glenn Stevens, held the benchmark rate at 3 percent, as forecast by all 20 analysts surveyed by Bloomberg News. There is still “some scope for further easing of monetary policy, if needed,” said Stevens. The RBA slashed the rate by a record 4.25 percentage points in six moves between September and April.

The Australian dollar dropped to 75.55 yen, from 76.06 yen yesterday, and to 79.47 U.S. cents, from 79.77 cents.