Yen Falls as Advance in Stocks Boosts Demand for Higher Yields

By Ye Xie

Sept. 10 (Bloomberg) -- The yen fell the most in more than two weeks against the euro and the dollar as an increase in U.S. stocks encouraged investors to take out low-cost loans in Japan and buy higher-yielding assets elsewhere.

Japan's currency also decreased versus the Australian and New Zealand dollars on speculation carry trades will resume. The yen earlier touched a 13-month high against the euro as stock futures dropped after Lehman Brothers Holdings Inc. reported a $3.9 billion loss that was worse than analysts forecast.

``The currency market is taking its cue from equities,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``The equity market is going back and forth after the knee-jerk sell-off.''

The yen declined 0.7 percent to 151.97 per euro at 10:02 a.m. in New York, from 150.94 yesterday. It earlier touched 150.16, the strongest level since August 2007. The yen dropped 0.8 percent to 107.62 per dollar, from 106.81. The dollar traded at $1.4122 per euro, compared with $1.4133 yesterday, when it reached $1.4047, the highest since October 2007.

Japan's currency dropped 1.4 percent to 86.88 against the Australian dollar and 0.8 percent to 71.94 versus the New Zealand dollar on bets investors will conduct trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 7 percent in Australia and 8 percent in New Zealand.

Stock Gains

Lehman advanced 12 percent, rebounding from yesterday's record plunge, on plans to sell a majority stake in its asset- management unit, spin off commercial real estate and slash its annual dividend 93 percent.

The Standard & Poor's 500 Index increased 0.4 percent. Futures initially fell 0.5 percent after Lehman posted writedowns of $5.6 billion. The New York firm moved its third- quarter earnings announcement up a week after talks with state- owned Korea Development Bank about a possible investment ended.

The yen has gained almost 10 percent versus the euro this quarter on concern credit market losses are deepening and the global economy is slowing.

``The broad story of risk aversion is here to stay,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``The yen will benefit from this on a more sustainable basis than it has before.''

The euro's 14-day relative strength index against the yen, a comparison of the magnitude of gains and losses, was 20.38. A reading below 30 typically signals a change in price direction is imminent.

``People have been wondering when the markets were going to take a break,'' said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. ``A bout of risk aversion led to a massive reversal in many trades that pushed down the euro and caused the yen to rise. This move has clearly gone too far.''

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net