Yen Declines as Gains in U.S. Stocks Encourage Carry Trades

The yen declined against 14 of the 16 most-active currencies after U.S. stocks advanced, encouraging investors to increase holdings of higher-yielding assets bought with money borrowed in Japan., Bloomberg 1/28/2008 4:29:31 PM

Japan's currency weakened the most against the South African rand and the Swedish krona after Asian stocks futures climbed on speculation the U.S. Federal Reserve will lower interest rates by a half percentage point this week.

The yen fell for the second day to 158.11 per euro at 8:17 a.m. in Tokyo from 158.02 late in New York yesterday. Japan's currency was at 106.99 per dollar compared with 106.90 late yesterday. The euro was at $1.4781.

The yuan rose to 7.1970 per dollar at the 5:30 p.m. close in Shanghai yesterday, advancing through 7.2 per dollar for the first time since the end of a dollar peg in July 2005, according to data compiled by Bloomberg.

One-month implied volatility for the yen fell to 13.65 percent today, from 13.88 percent yesterday. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Lower volatility may encourage so- called carry trades.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between them.

Yen Declines as Gains in U.S. Stocks Encourage Carry Trades