The yen advanced versus the New Zealand dollar and the South African rand, favorites for so-called carry trades, as stocks slumped after Standard & Poor's lowered its debt rating on three of Wall Street's biggest securities firms. The currency extended gains after the Wall Street Journal reported Lehman Brothers Holdings Inc. may raise as much as $4 billion of extra capital, citing unidentified executives.
The yen rose to 161.82 per euro, the highest level since May 21, before trading at 162.04 at 7:30 a.m. in London, from 162.26 in New York yesterday, when it rose 1.2 percent, the biggest advance since March 17. Japan's currency climbed to 104.20 per dollar from 104.43 yesterday. The dollar traded at $1.5555 a euro from $1.5537. Japan's currency may rise to 161.50 per euro and 103.90 a dollar today, Saito forecast.
The British pound slid to $1.9628 from $1.9671, after Bradford & Bingley Plc, the U.K. lender struggling to raise cash, said it may have to buy as much as $4 billion of mortgages by the end of next year from GMAC LLC, a Detroit-based car and home lender. It declined to 79.24 pence per euro from 78.98 pence.
In carry trades, investors get funds in a country with low borrowing costs and purchase assets where returns are higher. Japan's target lending rate of 0.5 percent, the lowest among industrialized countries, compares with 8.25 percent in New Zealand and 11.5 percent in South Africa.
Higher volatility may discourage carry trades by eroding those profits. One-month implied volatility for the yen rose to 12.07 percent from 11.54 percent yesterday. Traders quote the gauge of expectations for currency swings as part of pricing options.