Wednesday, August 13, 2008

Yen Rises on Speculation Carry Trades Pared as Stocks Slump

By Stanley White

Aug. 14 (Bloomberg) -- The yen rose against the dollar and the euro as Asian stocks followed U.S. equities lower, prompting investors to reduce bets on higher-yielding assets outside Japan.

Japan's currency climbed against the South African rand and the British pound, two favorites of so-called carry trades, after U.S. retail sales declined and Merrill Lynch & Co. said a crisis in credit is far from over. Australia's dollar pared gains against the U.S. currency after the Reserve Bank of Australia said it may lower interest rates.

``There's a great chance that the yen will appreciate,'' said Akira Takei, the general manager in Tokyo for international bonds at Mizuho Asset Management Co., which oversees the equivalent of $37.3 billion. ``Things are still quite turbulent due to worries over the credit crisis. There will be an unwinding in carry trades.''

The yen rose to 162.09 per euro as of 9:14 a.m. in Tokyo from 163.43 late yesterday in New York, when it reached a three- month high of 161.40. Against the dollar, the yen climbed to 109.36, from 109.53. The euro was little changed at $1.4909.

Against the South African rand, the yen rose to 13.8861 from 13.9086. It also gained to 204.34 per pound from 204.87.

The Nikkei 225 Stock Average fell 0.7 percent and the MSCI Asia Pacific Index of regional shares dropped 0.5 percent.

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, the lowest among major economies. Benchmark rates are 4.25 percent in Europe, 12 percent in South Africa and 5 percent in the U.K.

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