Yen Advance on Reduced Demand for Higher Yields

The yen rose against all of the other major currencies on bets credit market losses will widen, prompting investors to sell higher-yielding assets and pay back loans in Japan.

Japan's currency gained the most in more than a week versus the euro on speculation American International Group Inc. will post a quarterly loss and as Columbian Bank & Trust Co. became the ninth U.S. bank to collapse this year.

The yen gained 0.6 percent to 109.47 per dollar at 11:30 a.m. in New York, from 110.07 on Aug. 22. The euro declined 0.6 percent to 161.81 yen, from 162.83. The dollar traded at $1.4780 per euro, compared with $1.4793. The Swiss franc rose 0.4 percent to 1.6187 per euro and 0.3 percent to 1.0951 per dollar.

Japan's currency climbed 0.7 percent to 77.49 per New Zealand dollar and the franc increased 1 percent to 7.06 South African rand on reduced demand for carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compare with 8 percent in New Zealand and 12 percent in South Africa.

The dollar briefly pared its loss against the yen as an industry report showed U.S. home resales rose last month more than economists forecast.

Yen Advance on Reduced Demand for Higher Yields, Bloomberg
8/25/2008 9:15:51 AM