Yen Falls as Rally in Stocks Boosts Confidence in Carry Trades

The yen fell to its lowest in more than three months against the euro as a rally in Asian stocks gave investors confidence to buy higher-yielding currencies with loans from Japan., Bloomberg 4/17/2008 6:44:54 AM

The currency slid against the South African rand and the New Zealand dollar, favorites for so-called carry trades, after the Wall Street Journal reported Freddie Mac, the second-largest source of money for U.S. home loans, may announce plans to increase lending. The dollar traded near a record low against the euro on speculation a Federal Reserve regional factory report will bolster the case for U.S. interest-rate cuts.

The yen declined to 162.82 per euro, the weakest level since Jan. 2, before trading at 162.79 at 8:06 a.m. in London from 162.41 in New York late yesterday. The yen may fall to 163.50 today, Nashimoto forecast. It traded at 102.09 yen per dollar from 101.83 yen. The dollar was at $1.5922 a euro from $1.5947 yesterday, when it reached $1.5979, the lowest since the European currency's debut in 1999.

The yen fell to 12.9973 from 12.9518 versus the rand and to 80.67 per New Zealand dollar from 80.66. In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread. The risk is that currency fluctuations erase the profit.

Japan's benchmark rate of 0.5 percent compares with 11.5 percent in South Africa, 7.25 percent in Australia and 8.25 percent in New Zealand. The MSCI Asia Pacific Index of regional shares gained for a third day, rising 1.1 percent.

The U.S. currency traded near a one-month low against the Australian dollar and approached the weakest level since 1980 versus the Norwegian krone. The Federal Reserve Bank of Philadelphia's general economic index was at minus 15.0 this month, completing a five-month contraction that was the longest since 2001, according to a Bloomberg News survey of economists. The report is due at 10 a.m. New York time.

The yen has risen 9.8 percent against the dollar and 0.5 percent versus the euro this year, eroding overseas earnings for Japanese companies such as Toyota Motor Corp., which may report a 20 percent slump in operating profits this fiscal year because of the stronger currency, the Nikkei newspaper reported today.

Yen Falls as Rally in Stocks Boosts Confidence in Carry Trades