By Kosuke Goto and Stanley White
Bloomberg -- The yen rose against all 16 of the world's most-active currencies after the New York Times said Merrill Lynch & Co. will increase writedowns, prompting traders to sell riskier assets bought with loans in Japan.
The currency gained the most versus the New Zealand dollar, British pound and South African rand, among the favorite targets of so-called carry trades. The newspaper said Merrill will post losses of $2.5 billion related to the global debt market slump in addition to the $5 billion announced this month, prompting Asian stocks to reverse earlier gains.
``The news report on Merrill Lynch caused risk reduction, triggering stock sales and the unwinding of the yen carry trade,'' said Kenichi Yumoto, a senior dealer at Societe Generale SA in Tokyo.
The yen advanced to 114.28 per dollar at 8:11 a.m. in London from 114.78 in New York yesterday. Against the euro, it gained to 162.35 from 163.70. Japan's currency may climb to 114 versus the dollar and 162.20 a euro today, Yumoto forecast.
A Merrill spokesman declined to comment, the New York Times reported. Standard & Poor's said today it may cut the credit ratings of 207 Australian and New Zealand residential mortgage- backed securities as turmoil in global credit markets spreads.
Yuan Breaks 7.5
The yen climbed to 86.03 against the New Zealand dollar from 86.90 yesterday, and advanced to 233.87 versus the pound from 235.42. Against the rand the currency traded at 17.02 from 17.14.
In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency moves erase those profits.
Japan's interest rate of 0.5 percent is the lowest among major economies and compares with a key rate of 8.25 percent in New Zealand and 5.75 percent in the U.K. South Africa's borrowing costs are 10.5 percent.
China's yuan rose beyond 7.5 to the dollar for the first time since a link to the dollar was ended in July 2005, driven by a widening trade surplus and inflows of foreign investment.
A report circulating within China's National Development and Reform Commission suggested the central bank should revalue the yuan by as much as 20 percent, according to Market News International. A People's Bank of China spokesman declined to comment. Traders are betting the currency will break 7 per dollar by the end of 2008, non-deliverable forwards contracts show.
Australia's CPI
The yen earlier fell against the Australian dollar after a measure of the southern hemisphere nation's consumer prices rose more than economists expected, fueling speculation the central bank will raise interest rates from 6.5 percent.
``We expect a rate increase in November and that won't be the last one in the cycle,'' said Sean Callow, senior foreign exchange strategist at Westpac Banking Corp. in Singapore. ``Currency markets are going to reflect that. The Australian dollar is likely to push higher.''
Japan's currency may fall to 106 against the Australian dollar by the end of March, Callow said. The Reserve Bank of Australia next meets on Nov. 6.
The dollar may decline against the euro for a second day before a U.S. report that economists forecast will show existing home sales last month sank to the lowest since November 2001.
U.S. Housing
The U.S. currency traded at $1.4253 per euro after falling 0.6 percent yesterday. The dollar dropped to an all-time low of $1.4348 on Oct. 22.
The National Association of Realtors may say sales of previously owned U.S. homes fell 4.5 percent in September, according to the median forecast in a Bloomberg News survey. The data is scheduled for 10 a.m. New York time.
``The U.S. housing market will get worse, with home mortgage payments going sour,'' said Tetsuhisa Hayashi, chief currency trader in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly traded lender by assets. ``The dollar will head south'' to 114.30 yen and $1.43 a euro today, he said.
Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying the Chinese yuan and Japanese yen because the Fed has eroded the value of the U.S. currency.
``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''
The Fed on Sept. 18 cut the target rate for overnight lending between banks by a half-percentage point to 4.75 percent. Interest-rate futures on the Chicago Board of Trade show traders see about an 88 percent chance the Fed will lower borrowing costs to 4.5 percent on Oct. 31, up from 54 percent a week ago.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net ; Stanley White in Tokyo at swhite28@bloomberg.net
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