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Yen Trades Near Two-Year High Versus Dollar on Credit Concerns
2007-11-26 20:47 (New York)


By Kosuke Goto and Ron Harui
Nov. 27 (Bloomberg) -- The yen traded near a two-year high
versus the dollar as global stocks fell, spurring investors to
sell higher-yielding assets bought with Japanese loans.
The yen was near the strongest in 2 1/2 months versus the
Australian and New Zealand dollars, favorites of so-called carry
trades, as Japanese stocks tumbled after Goldman Sachs Group Inc.
said HSBC Holdings Plc faces $12 billion in additional
writedowns related to subprime mortgage defaults. A report from
the Conference Board today will probably show the lowest U.S.
consumer confidence in two years.
``With sinking stocks causing risk aversion, the yen has
been appreciating,'' said Michiyoshi Kato, a senior vice
president of currency sales in Tokyo at Mizuho Corporate Bank
Ltd., a unit of Japan's second-largest publicly traded lender by
assets. ``The markets are sensitive to credit insecurity.''
The yen traded at 107.49 per dollar at 10:07 a.m. in Tokyo
from 107.41 late in New York yesterday, when it reached 107.23,
the strongest since June 2005. Japan's currency may advance to
106.80 per dollar today, Kato forecast. The yen traded at 159.75
per euro from 159.72 yesterday. The dollar was at $1.4864 per
euro after reaching $1.4967 on Nov. 23, the weakest since the
combined European currency was established.
Japan's currency was at 93.73 against the Australian dollar
from 93.44 in New York yesterday, when it touched 93.01, the
strongest since Sept. 10. It was at 80.85 per New Zealand dollar
from 80.63 yesterday, when it reached 80.32, the highest since
Sept. 12. Japan's Nikkei 225 Stock Average fell 2.1 percent.

Lower Japanese Stocks

Speculators are the most bullish on the yen in three years.
As of Nov. 20, traders and hedge funds held 30,401 more futures
contracts betting on an advance in the yen than contracts
wagering on a drop, figures from the Washington-based Commodity
Futures Trading Commission showed yesterday. The amount of so-
called net longs rose from 20,796 a week earlier and was the
biggest wager on a yen increase since December 2004.
The ``data represent the current yen-bullish and dollar-
bearish trend,'' said Ayako Sera, market strategist of global
markets at Sumitomo Trust & Banking Co. in Tokyo, Japan's fifth-
largest publicly traded lender by assets. The yen may rise to as
high as 105 by the end of March, Sera said.
Implied volatility for one-month dollar-yen options was
14.39 percent, up from about 9 percent at the start of November.
Traders quote implied volatility, a measure of expected currency
moves, as part of pricing options.
``With the stock and currency markets very volatile by
going this way and that, the yen carry trade doesn't work,''
said Mitsuru Sahara, senior currency sales manager at Bank of
Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly
traded lender by assets. He sees the yen rising to 106.80 today.

Consumer Confidence

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.
The Conference Board's gauge of consumer confidence will
decline to 91 for this month, the lowest since October 2005,
from 95.6 in October, according to the median estimate of
economists surveyed by Bloomberg News. A report today from
S&P/Case-Shiller is expected to show house prices in 20 U.S.
metropolitan areas fell 4.9 percent in the 12 months that ended
in September, a separate survey shows.
Traders are betting there's a 100 percent chance the
Federal Reserve will cut its key rate by at least a quarter-
percentage point next month from the current level of 4.5
percent, according to interest-rate futures traded on the
Chicago Board of Trade. Investors saw an 82 percent chance of a
December cut a month ago.

Business Confidence

Europe's single currency may decline for a fifth day
against the yen, its longest losing stretch since July 27,
before a German report today that will probably show business
confidence dropped to the lowest in almost two years in November.
An economic slowdown in the euro area may prompt the European
Central Bank to refrain from raising interest rates.
``The report is likely to act as a drag'' on the 13-nation
region's economic expansion, said Seiichiro Muta, director of
foreign exchange in Tokyo at UBS AG, the world's second-largest
currency trader. ``The euro may weaken.''
The euro traded at $1.4873 from $1.4872 yesterday. It may
fall to $1.4830 and 159.50 yen today, Muta said.
The currency may extend the past month's 2.7 percent
decline against the yen as the Ifo research institute may say at
10 a.m. in Munich that its business climate index slipped to
103.3, the lowest since January 2006, from 103.9 in October,
according to a Bloomberg News survey of economists.

--With reporting by David McIntyre in Sydney and Junko Kikkawa
in Tokyo. Editor: Chris Young, Nate Hosoda

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