Yen Heads for Weekly Advance


The yen headed for its biggest weekly gain in three months against the euro as a decline in global stock markets caused investors to sell higher-yielding assets financed with loans from Japan.

The currency was also set for the first winning week in four versus the dollar on signs credit-market turmoil persists after American International Group Inc., the world's largest insurer by assets, said it needed to raise capital after posting a loss. The euro rebounded from an eight-week low against the dollar after European Central Bank President Jean-Claude Trichet said inflation remains the bank's top priority.

The yen traded at 159.78 per euro at 9:35 a.m. in Tokyo from 159.72 late in New York yesterday and 162.53 a week ago. It rose to 159.05 a euro yesterday, the highest since April 14. Japan's currency was at 103.73 a dollar from 103.74 yesterday and 105.40 a week earlier. The dollar traded at $1.5404 per euro, compared with $1.5393 yesterday and $1.5424 a week ago.

The yen extended gains after AIG said it plans to raise $12.5 billion to shore up finances stemming from the subprime mortgage collapse. The world's biggest financial companies have posted at least $319 billion in writedowns and credit losses since the start of last year, discouraging investors from so- called carry trades.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.

Japan's target lending rate of 0.5 percent is the lowest among major economies and compares with 8.25 percent in New Zealand and 7.25 percent in Australia. The yen traded at 97.99 per Australian dollar from 97.89 yesterday in New York and 98.49 a week ago. It was at 80.11 per New Zealand dollar from 80.03 yesterday and 82.19 a week earlier.

The ECB yesterday held interest rates at a six-year high as consumer prices in the 15 countries that share the euro rose 3.3 percent last month from a year earlier. They increased 3.6 percent in March, the most in almost 16 years. The ECB, which aims to keep inflation just below 2 percent, has left borrowing costs unchanged since June of last year.

 


TradingEconomics.com, Bloomberg
5/8/2008 6:47:16 PM