Business Highlights

Business Highlights
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Yen Rises on Speculation Investors Cut Risk as Stocks Decline

By Kosuke Goto

(Bloomberg) -- The yen rose against 14 of the 16 most-active currencies as Asian stocks followed the U.S. lower on renewed concern mortgage losses will worsen, threatening to slow economic growth.

The Japanese currency gained the most versus the Australian and Taiwan dollars, favorites for so-called carry trades, where investors borrow at low interest rates to fund higher-yielding asset purchases elsewhere. Federal Reserve Chairman Ben S. Bernanke said the U.S. housing slump will be a ``significant drag'' on the expansion through to next year.

``Due to the concern over credit contraction and stock market declines, there is still some room for weakness in high- yielding currencies such as the New Zealand and Australian'' dollars against the yen, said Motonari Ogawa, vice president for interest-rate products and foreign exchange at Morgan Stanley in Tokyo. ``The topside of yen crosses should be heavy today.''

The yen advanced to 166.59 per euro as of 11 a.m. in Tokyo from 166.75 in New York. It traded at 117.29 against the dollar from 117.40. The currency may move between 117.10 and 117.60 to the dollar and 166.30 to 167.10 versus the euro today, Ogawa forecast.

Economic reports over the next two days are forecast by analysts to show confidence among U.S. homebuilders dropped to a record low and builders broke ground on the fewest homes in 12 years.

Stocks Decline

The yen also strengthened against currencies such as the British pound, Singapore dollar and euro, countries where interest rates are higher than Japan's 0.5 percent rate, which is the lowest among major economies.

It rose to 105.45 per Australian dollar from 105.52 late yesterday in New York and to 239.53 against the pound from 239.83.

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.

The Morgan Stanley Capital International Asia-Pacific Index of regional shares dropped as much as 1.2 percent and the Nikkei 225 Stock Average lost as much as 1.3 percent after U.S. stocks fell the most in five weeks yesterday on concern mortgage losses will worsen the housing slowdown.

Fed's Bernanke

The dollar was little changed versus the yen and euro after Bernanke said the outlook for the U.S. economy is ``uncertain'' and policy makers will do what's needed to secure growth and contain prices. Evidence of a broader impact on spending is limited, Bernanke said in a speech to the Economic Club of New York.

``Bernanke was cautious about the U.S. economic outlook,'' said Masaki Fukui, a senior economist and currency analyst at Mizuho Corporate Bank Ltd. in Tokyo. ``The U.S. housing sector will be getting worse into next year. This will weigh on the dollar.''

The dollar traded at $1.4202 per euro from $1.4205 in New York yesterday. It touched $1.4283 on Oct. 1, the weakest since the 13-nation single currency was introduced in 1999.

The dollar may fall to 109 yen by year-end, Mizuho's Fukui forecast.

One-month implied volatility for the yen rose for a third day to 8 percent, from 7.93 percent yesterday. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Higher volatility may discourage carry trades.

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net

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