The yen climbed against 15 of the 16 most-traded currencies as Asian shares fell after U.S. service industries contracted at the fastest pace since 2001. Japan's currency appreciated the most versus the Brazilian real, the Australian dollar and the Norwegian krone, favorite targets of so-called carry trades, after Fitch Ratings said it may downgrade the AAA insurance rating on MBIA Inc., the largest bond guarantor.
The yen gained to 155.98 per euro at 9:56 a.m. in Tokyo from 156.46 late in New York yesterday and touched 155.74, the strongest since Jan. 28. It may reach 155 over the next week, Trinh said. Japan's currency strengthened to 106.59 per dollar from 106.82 late yesterday. The euro was at $1.4638.
In carry trades, investors buy higher-yielding assets with money borrowed in countries with low borrowing costs, such as Japan's 0.5 percent. Australia's benchmark rate was increased to 7 percent yesterday and Brazil's rate is 11.25 percent. The strategy is considered risky because currency fluctuations can erase the profits between the two rates.
Investors sought to repay loans in Japan after the MSCI Asia-Pacific Index of regional shares fell 1.5 percent and Japan's Nikkei 225 Stock Average Index slid 3.6 percent. The dollar-yen's correlation with the Nikkei over the past year is 0.95, according to data compiled by Bloomberg. A figure of 1 means the two variables move in lockstep.
Losses in the dollar against the yen may accelerate before a U.S. Labor Department report today that is forecast by economists to show worker productivity expanded at the slowest pace in more than a year in the fourth quarter.