Yen Rises as Carry Trades Pared on Global Recession Concern

By Stanley White

Oct. 27 (Bloomberg) -- The yen rose against the dollar and was approaching a 13-year high as the risk of a global recession and an extended slump in the world's stock markets prompted investors to slash carry trades.

The yen also advanced against the Australian and New Zealand dollars, two favorites of so-called carry trades, in which investors fund purchases of higher-yielding assets with Japanese currency. Gains in the yen may be limited after the Reserve Bank of Australia said it bought Australian dollars on Oct. 24 after the currency fell 22 percent this month.

``The yen has further to rise,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd., a unit of Japan's largest brokerage. ``Higher- yielding currencies are falling apart. The global economy is in trouble and the yen looks relatively attractive because Japan isn't as damaged as other countries.''

The yen rose to 93.20 per dollar as of 8:51 a.m. in Tokyo, from 94.32 in New York on Oct. 24, when it surged as much as 7 percent to 90.93, the highest level since August 1995. Japan's currency gained to 117.54 per euro from 118.96 at the end of last week, when it reached 113.81, the strongest level since May 2002. The euro bought $1.2613 from $1.2623. The yen may rise to around 90 per dollar today, Amikura forecast.

Japan's currency has jumped this month by 14 percent against the greenback, 27 percent versus the euro, 46 percent against the Australian dollar and 37 percent versus the New Zealand dollar as traders slashed carry trades.

Japan's benchmark rate of 0.5 percent is the lowest among major economies.

RBA Intervention

Gains in the yen may be limited by speculation Japanese authorities will sell the currency to stem its rapid gains.

The Reserve Bank of Australia bought the Australian dollar on Oct. 24 as it fell to a five-year low of 60.57 U.S. cents, a central bank spokesman said today. The Aussie, as the currency is known, last traded at 6173 U.S. cents from 62.23 U.S. cents.

The RBA was ``providing liquidity into an illiquid market and may intervene again in similar circumstances, said a spokesman who declined to be identified.

``Traders may hesitate to buy the yen from here,'' said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co., Japan's fifth-largest broker by revenue. ``Other central banks were surely aware that the RBA intervened. We can't rule out further intervention to stabilize currencies.''

Central banks intervene in foreign exchange markets when the arrange purchases and sales of currencies.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net