BL: Yen Declines on Speculation Higher Stocks to Boost Carry Trades
By Stanley White and David McIntyre
Nov. 26 (Bloomberg) -- The yen dropped from a two-year high against the dollar as global stocks climbed, encouraging investors to increase holdings of higher-yielding assets bought with money borrowed in Japan.
Japan's currency fell the most versus the Australian dollar, a favorite target of so-called carry trades. The yen slid against all of the 16 most-actively traded currencies after Asian stocks rose for a second day.
``It's likely to be a negative day for the yen,'' said Tony Morriss, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd., Australia's third-largest lender. ``There's a bit more risk appetite.''
The yen declined to 108.56 per dollar at 9:20 a.m. in Tokyo from 108.29 late in New York Nov. 23, when it reached 107.55, the strongest since June 2005. Japan's currency traded at 161.10 per euro from 160.54. The dollar was at $1.4838 per euro.
Against Australia's dollar, the yen fell to 95.71 from 95.05 late on Nov. 23, when it reached 93.57, the highest since Sept. 11. Japan's currency rose to 82.63 per New Zealand dollar from 82.18. The Morgan Stanley Capital International Asia Pacific Index of regional equities advanced 0.5 percent.
In carry trades, speculators get funds in a country with low borrowing costs and invest in one with higher returns, earning the spread between the two. The risk is currency fluctuations erase profits between the two rates.
Japan's 0.5 percent benchmark borrowing cost is the lowest among major economies and compares with 4.5 percent in the U.S., 6.75 percent in Australia and a record 8.25 percent target rate in New Zealand.
U.S. Housing
Gains in the dollar may be limited by speculation reports this week will show U.S. home sales declined, fueling expectations a housing recession will lead to lower interest rates.
The National Association of Realtors will say Nov. 28 existing home sales declined to 5 million in October, according to a Bloomberg News survey, the lowest since comparable records began in 1999. Data a day later will show new home sales fell to 750,000 in the same month, just above an 11-year low, according to a separate survey of economists.
``The dollar is likely to weaken,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``There is a real risk that the housing market weighs on U.S. economic growth for months to come.''
The dollar may fall to 108 yen and $1.4850 per euro today, he forecast.
Interest rate futures show traders see 96 percent odds the Federal Reserve will lower its benchmark rate a quarter point to 4.25 percent at its next meeting on Dec. 11, up from 66 percent odds a month ago. The dollar has fallen against 15 of the 16 most-active currencies since the Fed cut rates from 5.25 percent on Sept. 18.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net David McIntyre in Sydney at dmcintyre2@bloomberg.net
Last Updated: November 25, 2007 19:37 EST
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If you take anything I say as advice, you're crazier than I am.
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