Yen Rises on Speculation Stocks Rout Will Reverse Carry Trades

The yen rose against the dollar, headed for its biggest weekly gain in a decade, on speculation a global stock-market rout will prompt investors to pare holdings of higher-yielding assets funded with the Japanese currency.

The yen was on course for its largest weekly gain versus the euro as the Dow Jones Industrial Average and Nikkei 225 Stock Average both fell below 9,000 for the first time since 2003 on signs that carmakers will be the next victims of the credit crisis.

The yen rose to 99.19 per dollar at 10:35 a.m. in Tokyo from 99.82 late yesterday in New York, up 6.2 percent this week. It touched 97.92, the strongest since March 19. Japan's currency was at 134.55 versus the euro from 145.11 on Oct. 3, heading for the largest weekly gain since the single currency's creation in 1999. It reached 132.83, the strongest since July 2005.

Against the Australian dollar, the yen traded at 65.96, on course for a 24 percent gain this week. The yen soared by 18 percent against the New Zealand dollar this week to 59.19.

The yen has surged 27 percent versus the Australian dollar, 20 percent against New Zealand's currency and 11 percent against the euro this month as investors pared so-called carry trades, in which investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. Japan's benchmark rate is 0.5 percent, compared with 6 percent in Australia and 7.5 percent in New Zealand.

The euro headed for a third weekly loss against the dollar and a second versus the yen on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates. The currency fell to $1.3566 from $1.3604, on course for its second weekly decline.

The common currency has fallen 6.8 percent versus the yen this week, the most since the euro's debut in 1999, as central banks around the world were forced to lower borrowing costs this week after the seizure in credit markets stoked concern banks will run short of money. ECB policy makers said yesterday they expect the region's economic growth will remain weak for some time.

The dollar touched a 14-month high of $1.3444 per euro on Oct. 6 as the freeze in credit markets and global stock losses boosted demand for U.S. Treasuries. Banks' reluctance to lend to each other also caused a shortage of dollars for funding, accelerating the currency's gain.,
10/9/2008 7:55:14 PM