Yen Gains as Stocks Decline

The yen rose against the dollar and euro on speculation widening mortgage-industry losses will prompt investors to pare holdings of higher-yielding assets funded with the Japanese currency.

The yen gained most versus the Norwegian krone and the South African rand as stocks fell in Europe and Asia after Lehman Brothers Holdings Inc. said yesterday Fannie Mae and Freddie Mac, the two largest U.S. mortgage financers, may have to raise a combined $75 billion in capital. The yuan stayed higher after the Group of Eight nations signaled they are seeking gains in the currencies with trade surpluses, without singling out China.

The yen climbed to 167.66 per euro as of 7 a.m. in New York, from 168.55 yesterday. It advanced to 106.84 per dollar from 107.18. The dollar rose to $1.5693, from $1.5726. The yen will rise to 105 per dollar and to 167 per euro in the coming month, Hettinger forecast.

The Japanese currency advanced versus the krone and the rand as a drop in commodity prices reduced the appeal of currencies from countries that export raw materials. The Reuters/Jefferies CRB Index of commodities futures fell 2.8 percent to 459.04, the biggest drop since March 19.

Stocks fell after analysts at Lehman Brothers Holdings Inc. said yesterday a change in accounting rules may force Fannie Mae and Freddie Mac to raise $46 billion and $29 billion, respectively. The MSCI World Index lost 0.7 percent to 1354.88, extending its drop from an October record to almost 20 percent. Futures on the Standard & Poor's 500 Index fell 0.5 percent, signaling the benchmark index may enter a bear market today.

A slump in stocks this year has prompted investors to reduce carry trades, in which they get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. Japan's benchmark rate of 0.5 percent compares with 5.75 percent in Norway and 12.25 percent in Brazil.

Yen Gains as Stocks Decline, Bloomberg
7/8/2008 6:38:25 AM