Yen Trades Near 1-Month Low

The yen traded near a one-month low against the dollar on speculation Japanese investors will spend their summer bonuses on overseas assets offering higher yields.

The currency may fall for a second day as Japanese finance companies seek to raise about 380 billion yen ($3.5 billion) in the remainder of this week for funds investing abroad, according to data compiled by Bloomberg. The dollar traded near a one- month high versus the euro as an increase in U.S. consumer confidence damped concern the economy will slip into recession.

Japan's currency traded at 108.03 per dollar at 10:19 a.m. in Tokyo from 108.11 in New York yesterday, when it fell to 108.29, the weakest level since June 25. The yen was also at 168.29 per euro from 168.53. The dollar traded at $1.5580 per euro, little changed from yesterday, when it climbed to $1.5554, the strongest level since June 25.

The Bank of Japan's target lending rate of 0.5 percent is the lowest among industrialized economies, making assets outside of the country more attractive to domestic investors.

Implied volatility on one-month dollar-yen options fell to 10.17 percent from 10.73 percent a week earlier. Lower volatility may encourage so-called carry trades, in which investors borrow in countries with low interest rates and buy assets where returns are higher.

The dollar may rise for a second day against the euro after crude oil dropped to a 12-week low of $120.42 a barrel yesterday, helping drive U.S. stocks higher. The euro-dollar exchange rate and oil often move in the same direction, having had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

Yen Trades Near 1-Month Low, Bloomberg
7/29/2008 8:22:21 PM