Yen May Rise Against Dollar on Credit Concerns, Risk Aversion

By Bo Nielsen

Oct. 16 (Bloomberg) -- The yen may rise for a second straight day versus the dollar as comments from the biggest U.S. bank about deteriorating credit markets stoked risk aversion.

Citigroup Inc. yesterday said the financial industry is in for more losses from the housing market. A private report is forecast to show confidence among U.S. homebuilders fell to a record low. Federal Reserve Chairman Ben S. Bernanke speaks about the U.S. economy in New York.

``Risk aversion is going to be an ongoing theme,'' said Steven Butler, director of foreign exchange trading at Scotia Capital Inc. in Toronto. ``Even in pockets of calm, the market realizes things are going to get a whole lot worse in the U.S. before they get better.''

The yen traded at 117.39 per U.S. dollar and 166.75 versus the euro at 6 a.m. in Tokyo. The euro bought $1.4205. Japan's currency gained 0.2 percent versus the dollar yesterday.

The yen yesterday advanced 0.9 percent versus the Australian dollar and Brazilian real after Citigroup Inc. said third-quarter earnings fell 57 percent. Chief Financial Officer Gary Crittenden said late payments on home loans may worsen in the fourth quarter.

``An air of skepticism is re-emerging around the credit problems,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut.

U.S. Stock Indexes

The Standard & Poor's 500 Index and the Dow Jones Industrial Average fell 0.8 percent yesterday. The indexes lost more than 3 percent in June and July as credit markets were roiled by the worst recession in the U.S. housing market in 16 years.

The National Association of Home Builders/Wells Fargo index of builder confidence may drop to a record low of 19 this month, according to the median estimate of 36 economists surveyed by Bloomberg News. The data will be released at 1 p.m. Washington time.

Bernanke may speak about the resilience of the U.S. economy in the face of the housing slump at his address to the Economic Club of New York at 7 p.m. New York time on Oct. 15.

The Bank of Japan yesterday cut its economic assessment in three of the country's nine regions yesterday, making it more difficult to continue the policy of gradual interest-rate increases. Japan's 0.5 percent benchmark interest rate is the lowest among major economies and compares with 11.25 percent in Brazil and 6.5 percent in Australia.

The Fed

The Fed cut its benchmark interest rate by a half-percentage point to 4.75 percent on Sept. 18 as losses on loans to homeowners with poor credit records sparked an increase in short- term borrowing costs. The Frankfurt-based European Central Bank kept its main rate unchanged at 4 percent on Oct. 4.

The difference in yields between two-year German bunds and a comparable-maturity Japanese note rose 1 basis point, or 0.01 percentage point, to 3.33 percentage points yesterday, the highest in more than two months.

The difference in the number of wagers by large speculators on a decline in the yen versus the dollar compared with those on a gain -- so-called net shorts -- was 45,757 on Oct. 9, compared with 28,069 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show. A short is a bet on a currency's decline.

Finance ministers from the Group of Seven industrialized nations will meet on Oct. 19 in Washington.

Canada's dollar yesterday fell from a 31-year high versus the U.S. currency before a Bank of Canada meeting today where policy makers will keep the benchmark lending rate at 4.5 percent, according to all 24 analysts surveyed by Bloomberg News. The currency, which reached parity with the U.S. dollar on Sept. 20 for the first time since 1976, fell 0.5 percent to $1.0240.

Last Updated: October 15, 2007 17:01 EDT