Yen Rises as Stock Market Declines Spur Cut in Carry Trades


The yen rose against all 16 of the most-active currencies as a decline in stocks prompted investors to sell higher-yielding assets bought with loans in Japan.

The currency headed for its best week versus the euro in two months and the biggest five-day gain against the dollar since Sept. 7 on speculation European officials will express concern over weakness in the yen at a Group of Seven nations meeting in Washington today. Asian stocks slumped after Bank of America Corp. reported about $4 billion in trading losses, prompting traders to pare so-called carry trades.

``Traders are taking their cue from falling stocks and buying the yen,'' said Osao Iizuka, head of foreign-exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``We're seeing a reduction in yen carry trades. Traders are also wary of what Europeans will say at the G-7 meeting.''

The yen rose to 164.65 per euro at 11:03 a.m. in Tokyo from 165.30 late yesterday in New York. Against the dollar, the yen advanced to 115.26 from 115.63. The euro bought $1.4285, below a record high of $1.4310 reached yesterday. The yen may climb to 164 per euro today, Iizuka said.

The yen rose to 85.89 against the New Zealand dollar from 91.35 at the end of last week. It gained to 102.64 against the Australian dollar, compared with 106.39 on Oct. 12. Japan's currency advanced 2.4 percent this week to 118.15 against the Canadian dollar.

G7 Meeting

``The yen won't be specifically mentioned in the G-7 communiqué,'' said Yuji Kameoka, a senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``They know Japan cannot easily raise rates as the pace of Japan's inflation is very slow, and because the U.S. is heading for lower rates.''

The yen may rise to 112 a dollar by year-end, Kameoka said. The BOJ is likely to delay a rate increase until February, while the Fed may lower rates twice or three times by March, he said.


Bloomberg
10/18/2007 7:47:26 PM