The Japanese currency gained the most versus the Australian dollar after a drop in U.S. previously owned home sales last month added to concern mortgage defaults will slow the world's largest economy. The Bank of Japan, in minutes from its July policy meeting, said a U.S. housing slump may slow growth.
"The yen will be supported on the risk-aversion play,'' said Paul Milton, chief dealer at Societe Generale SA in Sydney. "U.S. equities looked shaky last night.''
The yen advanced to 157.60 per euro at 9:26 a.m. in Tokyo from 158.12 late in New York yesterday. Japan's currency also climbed to 115.57 per dollar from 115.86.
Japan's currency rose as high as 149.27 per euro and 111.61 per dollar on Aug. 17 as funds reported losses related to U.S. subprime mortgages. Japan's Nikkei 225 Stock Average dropped 0.5 percent and the Morgan Stanley Capital International Asia-Pacific Index of regional shares lost 0.1 percent.
The Japanese currency climbed to 95.43 per Australian dollar from 95.94. Against the New Zealand dollar, it rose to 82.51, from 82.99 yesterday. The Southern Hemisphere currencies have been carry-trade favorites, with interest rates as much as 7.75 percentage points higher than in Japan.
"The decline in U.S. stocks suggests Asian stocks will follow suit and that will damp the mood for yen carry trades,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo.
"The yen fell a lot against currencies like the Australian dollar when the carry trade was in full swing, so you can expect a sharp reversal of that.''
The yen may rise to 93.20 against the Australian dollar in the next few days, he said.