The yen dropped versus the most-traded currencies after the Federal Reserve, Bank of Japan and European Central Bank joined with their counterparts around the world in a coordinated drive to reverse the seizure in credit markets. The cost of borrowing in dollars for three months jumped yesterday by the most since 1999 on concern losses and bankruptcies among financial institutions will spread.
The yen weakened to 105.02 per dollar as of 10:31 a.m. in London, from 104.66 yesterday in New York. The U.S. currency was at $1.4414 per euro from $1.4326. The yen dropped to 151.38 per euro, from 149.88.
The Fed said in a statement on its Web site it authorized other central banks to auction $180 billion in dollar funds to financial institutions. The ECB will offer up to $40 billion for one day today and increase the amount of dollars provided to European banks in existing longer term auctions, it said.
The yen typically falls when appetite for higher-yielding currencies rises as traders put on so-called carry trades that take advantage of interest-rate differentials. The Japanese currency fell 2 percent to 70.53 per New Zealand dollar and 1.9 percent to 84.34 against the Australian dollar.
The Swiss franc, another popular funding source for the carry trade, dropped 0.2 percent to 1.1053 against the dollar. Japan's key interest rate is 0.5 percent, compared with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand.
The dollar fell versus the euro as investor demand for U.S. government bonds waned and stocks rose. The yield on the two- year Treasury note rose 9 basis points to 1.73 percent. Yields move inversely to bond prices. The Dow Jones Euro Stoxx 50 index advanced 0.6 percent and December futures on the Standard & Poor's 500 Stock Index climbed 1.4 percent.
The yen jumped 3 percent against the dollar on Sept. 15, the most in a decade, as Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in history, sparking a global stock- market rout. The U.S. government's rescue of American International Group Inc. failed to calm investors.
The pound rose against the dollar after a government report showed U.K. retail sales unexpectedly increased in August, making an interest-rate cut by the Bank of England less likely.
The central banks acted after the three-month London interbank offered rate, or Libor, for dollars rose 19 basis points to 3.06 percent yesterday. Central banks in Japan and Australia injected $16.8 billion into money markets to keep a credit crisis from spreading beyond the U.S. and Europe.
The South Korean won lost 3.3 percent against the dollar this month while the Indian rupee is down 5.3 percent.