Yen Rises as Credit-Market Losses Damp Demand for Higher Yields


The yen rose to the highest level in three months against the euro as European and Asian stocks slid on concern that credit-market losses are widening, reducing demand for higher-yielding assets funded by loans in Japan.

The yen advanced versus all 16 of the most-active currencies after the Financial Times reported Lehman Brothers Holdings Inc. failed to sell a 50 percent stake to investors. The dollar traded near to its lowest level in a week against the euro before industry and government reports that may show the U.S. economic outlook worsened in July for a third consecutive month and manufacturing in the Philadelphia region contracted.

The yen advanced 0.9 percent to 160.71 per euro at 7 a.m. in New York, the highest level since May 13, from 162.03 yesterday. The Japanese currency slid 1 percent to 108.72 per dollar, from 109.86. The dollar fell to $1.4775 per euro, from $1.4747. The U.S currency fell as much 0.6 percent to $1.4833 earlier, the lowest level since Aug. 14.

Gains in the yen accelerated when it went through a so- called key level at 160.87 per euro. Earlier, the Japanese currency advanced after breaking above 109.50 and 109.20 against the dollar and 161.50 per euro, where traders had orders to buy the currency, said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. Traders sometimes place automatic instructions to limit losses in case their bets go the wrong way.

The yen rose as the MSCI Asia Pacific Index lost 0.8 percent and the Dow Jones Stoxx 600 fell 0.8 percent. Futures on the Standard & Poor's 500 Index expiring in September retreated 0.5 percent

Japan's currency advanced to 94.36 per Australian dollar, from 95.97 yesterday in New York. It climbed to 77.28 per New Zealand dollar from 78.33.

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 currency moves erase the profits.

Japan's target lending rate of 0.5 percent is the lowest among major economies and compares with 8 percent in New Zealand and 7.25 percent in Australia.


TradingEconomics.com, Bloomberg
8/21/2008 6:31:06 AM