The yen snapped a three-day decline against the dollar and euro as traders pared riskier investments funded by loans in Japan.
Japan's yen gained versus the 16 most-active currencies as the so-called carry trades unwound. U.S. stocks declined and a report showed the nation's sales of previously owned homes fell in July for a fifth consecutive month. The yen also benefited from speculation Japan's new Chief Cabinet Secretary Kaoru Yosano will favor an interest-rate increase.
``Risk aversion remains high and people are buying yen again,'' said Robert Fullem, manager of corporate foreign exchange sales with the Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The environment is not really conducive for putting on carry-trade positions.''
The yen rose 0.5 percent to 158.48 per euro at 2:13 p.m. in New York from 159.26 on Aug. 24. Japan's currency gained 0.3 percent to 116.14 per dollar from 116.44. Moves were exaggerated as some speculators avoided taking positions because of a public holiday in the U.K. The dollar increased 0.2 percent to $1.3649 per euro from $1.3675.
The Japanese yen advanced to as high as 149.27 per euro and 111.61 per dollar on Aug. 17 as losses from investments backed by U.S. subprime mortgages led to a global credit crunch. The credit market since then has stabilized, which helped push down the yen 1.8 percent against the dollar and 3.4 percent versus the euro last week.
The euro fell against the dollar after European Central Bank President Jean-Claude Trichet said he was never ``pre-committed'' to interest-rate increases.
Trichet on Rates
In his first public comments since the market rout began, Trichet said the bank's governing council will wait until it meets Sept. 6 before deciding whether to carry out its plan to raise borrowing costs from 4 percent. The Federal Reserve's interest rate is 5.25 percent.
``He wasn't pre-committed to a rate hike, which disappointed some investors,'' said Samarjit Shankar, director of global strategy for the Global Markets group in Boston at Bank of New York Mellon, the world's largest custodian bank with over $20 trillion in assets under administration. ``The ambivalent tone hurt the euro. The dollar remains well supported by risk aversion.''
Stocks Decline
U.S. stocks declined as the Standard & Poor's 500 Index fell 0.6 percent to 1,470.14 after Lehman Brothers Holdings Inc. analysts reduced their earnings estimates for Countrywide Financial Corp., the biggest U.S. mortgage lender. U.S. Treasuries erased their early declines.
Home Depot Inc., the world's biggest home-improvement retailer, agreed to sell its construction-supply unit for $8.5 billion, cutting the price by 18 percent after the U.S. credit squeeze curbed demand for leveraged-buyout debt, three people familiar with the agreement said. An announcement may come today, the people said.
Existing home sales declined 0.2 percent, less than forecast, to an annual rate of 5.75 million, from a revised 5.76 million in June, the National Association of Realtors said in Washington. That was the slowest pace since November 2002. Sales fell 9 percent compared with a year earlier.
`Credit Crisis'
``The credit crisis isn't yet over,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. ``It will carry into yen crosses, and we'll still see spells of risk aversion.''
Japanese Prime Minister Shinzo Abe shuffled his cabinet today, after his ruling Liberal Democratic Party was routed in elections last month.
Yosano, a former economy and banking minister, said keeping rates near zero is ``abnormal'' before the Bank of Japan raised borrowing costs for the first time in almost six years on July 14, 2006. The central bank next meets on Sept. 18-19.
Japan's benchmark interest rate is 0.5 percent, the lowest among industrialized nations. It compares with 5.75 percent in the U.K., 6.5 percent in Australia and 8.25 percent in New Zealand.
``Monetary policy will be more important for the yen,'' said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. ``Yosano is BOJ-friendly and that helps. The BOJ may raise interest rates next month.''
Japan's currency may rise to 115 against the dollar by the end of September, he said.
The yen also rose on speculation Japanese exporters bought the currency to settle month-end accounts.
`Buying the Yen'
``Japanese exporters are buying the yen,'' said Nobuaki Tani, a client manager of the Market Trading Office at Resona Bank Ltd. in Tokyo. ``Some of them are still lagging behind in their yen purchases and the currency dropped to cheap levels.''
Futures traders have reversed bets the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a fall -- so-called net longs -- was 1,516 on Aug. 21, compared with net shorts of 21,889 a week earlier.
Hedge funds swung to net long positions as they unwound investments in the higher-yielding dollar funded with borrowed yen, a practice known as the carry trade.
``The yen carry trade isn't the one-way bet that it used to be,'' said Tokichi Ito, deputy general manager of foreign exchange at Trust & Custody Services Bank Ltd. in Tokyo. ``Some speculators may look for the yen to gain against the dollar. You can't expect everyone who's been burned during the yen's appreciation to immediately rush back to yen selling.''
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