Yen Rises to Highest Versus Dollar Since July as U.S. Jobs Fall

By Ye Xie and Agnes Lovasz

Sept. 5 (Bloomberg) -- The yen rose to the highest level against the dollar since July after the U.S. lost jobs for an eighth month and touched a one-year high versus the euro as investors sold higher-yielding assets funded in Japan.

Japan's yen rallied against most of the world's major currencies on concern credit-market losses will lead to a global recession. The Australian and New Zealand dollars dropped to a two-year low on speculation a slump in stocks and commodities encouraged investors to reverse carry trades.

``The market is in favor of risk reduction,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``People are eliminating positions they previously held, euro-yen, Aussie-yen, in massive size.''

The yen rose for a third day against the dollar, increasing 0.7 percent to 106.36 at 10:31 a.m. in New York, from 107.08 yesterday. It reached 105.55, the highest since July 17. Japan's currency climbed 1.1 percent to 151.66 versus the euro, from 153.40, and touched 150.60, the highest since Aug. 17, 2007. Against the euro, the dollar traded at $1.4261, compared with $1.4325. It touched $1.4196, the strongest since Oct. 24.

Japan's currency increased as much as 3.5 percent to 85.03 versus the Australian dollar and 3 percent to 69.90 versus the New Zealand dollar as investors reduced trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark interest rate compares with 4.25 percent in Europe, 7 percent in Australia and 8 percent in New Zealand.

Russia vs. Georgia

The yen also benefited on concern Russia's conflict with Georgia will escalate. Investors have taken about $30 billion out of Russia since the start of its five-day war with Georgia on Aug. 8, according to BNP Paribas SA. The U.S. and the European Union have demanded that Russian soldiers withdraw to their pre-war positions.

Volatility implied by dollar-yen options expiring in one month rose to 13.13 percent, the highest since mid-July, showing market swings may erase carry-trade profits.

``These currency moves are huge,'' said Toru Tokoyoda, head of foreign-exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm. ``Volatility is likely to squeeze higher on further gains in the yen as that would spur demand to hedge against that move.''

One-month volatility may rise to 15 percent provided that the yen strengthens to 105 per dollar today, he said.

U.S. stocks dropped, and the MSCI World Index had its worst weekly slump since 2002. The UBS Bloomberg Constant Maturity Commodity Index reached a seven-month low.

Ruble's Gain

Russia's ruble gained versus the dollar-euro basket for the first time in four days, increasing 0.4 percent to 30.2935, after the central bank said it sold a ``significant'' amount of foreign reserves yesterday to prop up the currency. The basket is calculated by multiplying the ruble's rate versus the dollar by 0.55, the euro rate by 0.45 and then adding the results.

South Korea's won rose against all of the major currencies on speculation the central bank is buying the currency to halt its decline. The won advanced 1 percent to 1,117.95 versus the dollar, reversing an earlier drop of as much as 1.2 percent.

The Australian dollar fell 1.6 percent to 80.94 U.S. cents and the New Zealand dollar dropped 1.1 percent to 66.58 U.S. cents on concern the economic slowdown that started in the U.S. will spread to other Group of 10 industrialized nations.

``The fact the U.S. is weak doesn't brighten the prospect of the rest of the G-10,'' said Steven Englander, a currency strategist at Lehman Brothers Holdings Inc. in New York. ``As long as the market is feeding into the risk-aversion story, it's reasonably good for the yen, but not necessarily helpful for the rest of the G-10 against the dollar.''

ECB Comment

The euro dropped for a seventh day against the dollar, its longest decline since October 2006. The ECB kept its main refinancing rate at a seven-year high of 4.25 percent yesterday and President Jean-Claude Trichet told a press conference growth risks are on the ``downside.''

The 15-nation euro has dropped more than 10 percent against the dollar from the record high of $1.6038 set on July 15. The ECB lowered its 2008 economic growth forecast yesterday to about 1.4 percent from 1.8 percent.

U.S. payrolls shrank by 84,000 last month, following a revised decline of 60,000 in July, the Labor Department said today in Washington. The median forecast of 76 economists surveyed by Bloomberg News was for a reduction of 75,000. The jobless rate rose to 6.1 percent. The U.S. has lost jobs every month this year, the longest losing streak since 2002.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net