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Yen trades near 6-week low as investors seek higher yields

Yen trades near 6-week low as investors seek higher yields

The yen traded near a six-week low against the dollar as Asian stocks gained, boosting demand for higher-yielding assets funded by loans from Japan.
Japan's currency has fallen against nine of the 16 major currencies this year as speculation the Bank of Japan will refrain from raising interest rates spurred so-called carry trades. A U.S. report this week may show durable-goods orders rebounded, suggesting the world's largest economy is weathering the worst housing slump in 16 years. Financial markets were shut in Japan yesterday for a holiday.
"We're likely to see yen weakness in the short term," said Tony Morriss, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd., Australia's third-biggest lender. "Money is going to head out of Japan at the year-end for yield."
The yen weakened to 114.07 per dollar as of 9:40 a.m. in London, from 114.04 in New York on December 21 when it touched 114.21, the weakest since November 7. Japan's currency also dropped to 164.12 per euro, after falling to 164.19, the lowest since Dec. 14, compared with 163.98 at the end of last week. The dollar was at US$1.4388 per euro from US$1.4382. The pound fell to 72.637 pence per euro, the lowest since the European currency was introduced in 1999.
The yuan climbed as high as 7.3399 per dollar yesterday, the strongest since a dollar link was scrapped two years ago, from 7.3696 at the end of last week.
The yen may decline to 115 per dollar and 164.60 per euro this week, Morriss forecast.
"Currency trading will be about 25 percent of normal levels today because of the holiday in Japan and the fact many investors are taking a vacation before the Christmas break," said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-biggest lender.
The MSCI Asia Pacific Excluding Japan Index rose 1 percent today after U.S. stocks climbed at the end of last week.
In carry trades, investors borrow funds in countries with lower lending rates, such as Japan's 0.5 percent benchmark, and use the cash to buy fixed-income assets in nations that offer higher returns. The U.S. benchmark rate is 4.25 percent, Europe's is 4 percent, Australia's 6.75 percent and New Zealand's 8.25 percent.
Carry trades are considered risky because currency fluctuations can erase the profits earned. Japan's currency weakened to 99.35 against the Australian dollar from 98.90 in New York late last week. It was at 87.34 per New Zealand dollar from 87.06. The yen fell to 16.3697 against South Africa's rand from 16.2255 in New York on December 21.


Updated : 2021-05-14 10:28 GMT+08:00