Yen Gains; Concerns U.S. Economy Slowing Deters Carry Trades

By Kosuke Goto


Jan. 21 (Bloomberg) -- The yen strengthened against 13 of the 16 most-active currencies as rising concern the U.S. is headed for recession prompted investors to sell higher-yielding assets funded by loans made in Japan.

The Japanese currency gained the most versus the South African rand and approached the strongest since May 2005 against the dollar on speculation a report this week will show sales of existing homes in the U.S. fell in December, capping the biggest yearly slump in almost a generation. The yen is the best performing major currency this year as global stock markets have slumped on concern losses tied to U.S. mortgages are mounting.

``Amid the subprime turmoil, speculators will still remain aggressive in buying the yen,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets. ``Until the markets become calm, risk aversion will keep causing yen buying.''

The yen traded at 106.83 per dollar as of 7:59 a.m. in Tokyo from 106.87 in New York on Jan. 18. It reached 105.92 per dollar on Jan. 16, the strongest since May 2005. Japan's currency climbed to 155.93 per euro from 156.20. The dollar traded at $1.4598 against the euro from $1.4621.

Japan's currency may rise to 106.30 a dollar and 155.30 per euro today, Kato forecast.

South African Rand

The yen advanced to 15.0903 versus the rand from 15.1578.

The rand is a popular target for so-called carry trades, in which investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between them.

The Bank of Japan will leave the nation's benchmark overnight lending rate at 0.5 percent tomorrow, according to all 38 economists surveyed by Bloomberg News. South Africa's benchmark interest rate is 11 percent.

One-month implied volatility for the yen rose to 14 percent on Jan. 18, from 12.13 percent a week earlier. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Higher volatility may discourage carry trades.