Yen Rises to 1 1/2-Year High Against Dollar on Risk Reduction

By David McIntyre


Nov. 12 (Bloomberg) -- The yen rose to a 1 1/2-year high against the dollar as investors cut holdings of higher-yielding assets bought with money borrowed in Japan on renewed concerns of losses in credit markets.

Japan's currency climbed to the highest in almost two months against New Zealand's dollar, a favorite of the so-called carry trade, on speculation HSBC Holdings Plc will this week become the latest bank to reveal losses stemming from bad U.S. home loans. The yen traded at its highest in more than two weeks versus the euro on signs Asian stocks will follow U.S. share markets lower.

``The big beneficiary at the moment is the yen,'' said Sue Trinh, a senior currency strategist with RBC Capital Markets in Sydney. ``Risk aversion has dominated and we've seen the carry trade unwind on credit-market concerns.''

The yen traded at 110.51 per dollar at 8:29 a.m. in Tokyo and touched 110.22, the highest since May 2006, from 110.69 late in New York Nov. 9. It was at 161.96 per euro from 162.48 late last week.

Japan's currency advanced 0.8 percent to 100.15 per Australian dollar and reached 99.54, the strongest since Oct. 22. Against New Zealand's currency, the yen strengthened 0.7 percent to 83.99 and touched 83.38, the highest since Sept. 18.

Lower Stocks

The yen gained against all 16 most-actively traded currencies after the Daily Telegraph reported HSBC, Europe's largest bank by market value, is set to announce this week $1 billion of bad debts stemming from its U.S. mortgage business. The U.K. newspaper didn't cite the source of its information in the Nov. 11 report on its Web site.

Japan's currency has risen 7.2 percent against the dollar this year and cut its losses versus the euro to 2.9 percent as concerns the housing slump in the U.S. is deepening drives investors into low-yielding currencies. The world's biggest banks have written down at least $40 billion as prices of mortgage-related assets plummeted.

Traders are betting that Japanese stocks will decline today, with the Nikkei 225 Stock Average Futures due in December down to 15,335 in Singapore, compared with the index's close Nov. 9 of 15,583.42. Australian equities declined in early trade, suggesting investors' confidence for carry trades may lessen.

In carry trades, investors get loans in countries with lower borrowing costs, such as Japan's 0.5 percent, and buy assets in places with higher interest rates. New Zealand's rate is 8.25 percent, Australia's is 6.75 percent, Europe's is 4 percent and the U.S. cost of borrowing is 4.5 percent. The strategy is considered risky because currency fluctuations can erase the profit earned on the gap between the borrowing and lending rates.