Yen Climbs to Highest Since 2002 on Global Economic Concern

By Ye Xie and Agnes Lovasz

Oct. 23 (Bloomberg) -- The yen advanced to the highest level versus the euro in almost six years and rose against the dollar as global economic turmoil led investors to sell higher- yielding assets and pay back low-cost loans in Japan's currency.

Russia's ruble fell to the lowest versus the dollar since July 2006 as Standard & Poor's cut the country's debt rating outlook to negative. The dollar rose to the highest against the euro in almost two years as investors sought a haven.

``There's a fair amount of fear in the markets,'' said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. ``The yen is the safe haven.''

The yen gained 0.6 percent to 124.79 per euro at 10:20 a.m. in New York, from 125.60 yesterday. It touched 123.43, the strongest level since December 2002. The yen rose 0.3 percent to 97.37 per dollar from 97.66 after touching 96.86, the strongest since March 18. The U.S. currency increased 0.3 percent to $1.2818 per euro from $1.2855. It earlier touched $1.2728, the strongest since November 2006.

Sterling slid to the lowest level against the dollar in more than five years after the Office for National Statistics said today that retail sales in the U.K. declined 0.4 percent last month after rising 1.1 percent in August.

The pound dropped 1 percent to $1.6105 after touching $1.6042, the lowest level since September 2003. It fell yesterday as much as 3.4 percent, the biggest intraday decline since September 1992, when investor George Soros drove the currency out of Europe's system of linked exchange rates.

Falling Ruble

The ruble fell as much as 0.5 percent to 27.0664 per dollar, the weakest level in more than two years. S&P cut the outlook for Russia's BBB+ credit rating to ``negative'' from ``stable,'' saying the country's rating could be downgraded if the cost of the government's bank rescue increases.

Brazil's real rose, erasing a decline of as much as 5.8 percent, as the central bank bought the currency to stem a two- month rout. The real gained 2.7 percent to 2.3166 per dollar. The currency has lost 21 percent in the past month.

The yen gained 0.9 percent to 65.15 against the Australian dollar and 1.3 percent to 156.78 versus the pound on speculation investors will unwind carry trades, in which they get funds in a country with low borrowing and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 4.5 percent in the U.K. and 6 percent in Australia.

Japan's currency may strengthen to 90 per U.S. dollar by March 2009 as investors dump higher-yielding assets funded in Japan and bring their cash home, Barclays Capital said in a research note today.

Yen vs. Dollar

Japan's yen has appreciated 8 percent against the dollar this year, the only gain among the 16 most actively traded currencies tracked by Bloomberg.

The euro has lost 20 percent versus the dollar since touching the all-time high of $1.6038 on July 15. The European economy may be headed for a recession that could last two to three years, Finland's Finance Minister Jyrki Katainen said yesterday in an interview on Bloomberg Television.

Net selling of European stocks among institutional investors has been three times higher than average over the past year, and foreign investors account for most of the sales, according to Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration.

``One thing that stands out this week is huge European equity market outflows,'' said Shankar. ``The net selling is adding to pressure on the euro. Growth in the euro zone is deteriorating very fast.''

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