Yen Rises as Carry Trades Are Pared

The yen rose to a two-week high against the euro as faltering global growth and falling stocks prompted traders to pare holdings of higher-yielding assets funded in Japan.

The Japanese currency advanced the most versus the Australian and New Zealand dollars, favorites of so-called carry trades, on speculation the nations' central banks will cut interest rates. The dollar strengthened against the euro after a report showed German retail sales slumped, undermining the case for the European Central Bank to raise borrowing costs.

The yen rose a fifth day against the euro to 167.48 at 7:04 p.m. in New York from 168.39 yesterday. It earlier traded at 167.27, the highest since July 17. The dollar weakened to 107.60 yen from 107.91. The euro slid to $1.5566 from $1.5603.

The MCSI World Index of stocks dropped 0.5 percent after former Federal Reserve Chairman Alan Greenspan said in a CNBC interview yesterday U.S. home prices are ``nowhere near the bottom.'' A Labor Department report today may show companies cut employees for a seventh month in July.

Japan's currency rose to a one-month high of 100.42 per Australian dollar, from 101.69 yesterday in New York. It climbed to a four-month high of 77.90 per New Zealand dollar from 79.25.

In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. The Bank of Japan's target lending rate is 0.5 percent compared with 4.25 percent in Europe, 7.25 percent in Australia and 8 percent in New Zealand.

Traders speculated the Reserve Bank of Australia will lower its benchmark rate by 68 basis points, or 0.68 percentage point, over the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps. That's up from 32 basis points at the end of last week.

Yen Rises as Carry Trades Are Pared, Bloomberg
8/1/2008 6:46:06 AM