Yen Falls to Record Low Against Euro

The yen fell to a record low against the euro as a decline in currency volatility encouraged investors to buy higher-yielding assets funded in Japan.

The yen also slid to a seven-month low versus Australia's dollar as Asian stocks gained for the first time in six days, giving investors confidence to enter so-called carry trades. Volatility implied by yen options against the dollar approached a six-month low after the

Federal Reserve gave no indication it will increase interest rates. The dollar was near the lowest in more than two weeks against theeuro as traders pared bets on higher U.S. borrowing costs.

The yen fell to 169.34 per euro, the weakest since the currency's debut in 1999, before trading at 169.25 as of 6:11 a.m. in Londonfrom 168.90 yesterday. Japan's currency stood at 107.92 versus the dollar from 107.80. The dollar was at $1.5685 per euro afterdropping yesterday to $1.5686, the lowest level since June 9. Japan's currency may fall to 108.40 per dollar today, Sahara forecast.

Against the Australian dollar, the yen declined to a seven- month low of 103.64 from 103.48 late yesterday in New York. It fell to 213.08 per British pound from 212.93 as the MSCI Asia Pacific Index of regional shares gained 0.6 percent.

Volatility implied by dollar-yen options expiring in one month fell to 10.11 percent from 10.46 percent yesterday. It reached a six-month low of 10.01 percent on June 19. Traders quote the measure of expectations for future currency swings as part of pricing options.

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 the two. Japan's benchmark rate of 0.5 percent is the lowest among major economies.

Lower volatility reduces the risk that exchange-rate moves will erode the profit from investing overseas.

Yen Falls to Record Low Against Euro, Bloomberg
6/26/2008 6:36:58 AM