Yen Rallies as Risk Appetite Recedes

The yen rallied from a one-month low against the dollar and the euro on Thursday as the initial euphoria over a concerted effort by global central banks to ease liquidity concerns faded.

Equity markets reacted positively on Wednesday after the capital injection by the world’s leading central banks.

This sent the yen sharply lower as rising risk appetite drove investors back into carry trades, in which the low-yielding Japanese unit is sold to fund the purchase of riskier, higher-yielding assets elsewhere.

However, analysts said the effect faded as it became apparent that the measures, though likely to be effective to ensure liquidity over the holiday period, would do little to provide a solution to the underlying problems that led to the liquidity squeeze in the first place.

The yen rose 0.4 per cent to Y111.75 against the dollar, gained 0.5 per cent to Y164.20 against the euro and climbed 0.6 per cent to Y228.20 against the pound.

Against the higher-yielding Australian and New Zealand dollars, which rallied strongly on Wednesday, the yen rose 0.6 per cent to Y98.35 and 1.1 per cent to Y87.50 respectively.

Yen Rallies as Risk Appetite Recedes

Financial Times
12/13/2007 9:47:07 AM