Yen Falls Against Dollar, Euro

The yen weakened against the dollar and the euro after the Federal Reserve agreed to provide central banks with more cash to increase lending, encouraging traders to purchase higher-yielding assets funded in Japan.

The yen also slid against every major currency after Goldman Sachs Group Inc. raised $5 billion in stock from Warren Buffett's Berkshire Hathaway Inc. The Fed arranged $30 billion in swap lines with central banks in Norway, Sweden, Denmark and Australia, providing easier access to the U.S. currency in a response to soaring demand for dollar loans.

The yen weakened to 106.21 per dollar as of 6:05 a.m. in New York, from 105.56 yesterday. It depreciated to 155.77 per euro, from 154.63. The euro was at $1.4667, from $1.4648.

Demand for the yen typically drops when appetite for higher-risk assets increases, as traders pare so-called carry trades. In such transactions, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency-market moves can erase those profits.

The yen fell 1.2 percent to 88.99 per Australian dollar and 1.2 percent to 72.76 versus the New Zealand dollar.

The euro was little changed versus the dollar after the Munich-based Ifo institute's business climate index declined to 92.9 from 94.8 in August.

The dollar fell against the euro earlier after the Fed arranged $30 billion in swaps with central banks to ease short- term dollar funding. The U.S. Congress may prolong debate on the government's $700 billion proposal to remove illiquid assets from the banking system.

U.S. lawmakers have balked at rubber-stamping the Treasury's plan, with Democrats demanding it include support for homeowners and limits on executive pay. Republicans are also resisting the plan, which economists predict would push the budget deficit to an all-time high next year.,
9/24/2008 5:28:43 AM