Nov. 22 -- The yen retreated from the highest in more than two years against the dollar on speculation Japanese importers are selling the currency to take advantage of a five-month rally.
The Bank of Japan's Tankan survey on Oct. 1 showed large manufactures expect the yen to trade at an average of 114.33 against the dollar in the six months ending on March 31. That is 4.6 percent weaker than its current level. The dollar fell to an all-time low against the euro and the Swiss franc on concern the Federal Reserve will cut interest rates to prevent subprime mortgage losses dragging the U.S. economy into recession.
``This level is a good opportunity for Japanese importers to buy the dollar against the yen,'' said Kazuyuki Takami, a manager of the currency trading department at Bank of Tokyo- Mitsubishi UFJ, a unit of Japan's largest publicly traded bank by assets. ``They will take advantage of the yen's rally.''
Japan's currency fell to 109.01 per dollar at 1:23 p.m. in Tokyo after touching 108.26 yesterday, the strongest since June 2005. It was at 162.05 per euro from 161.13 late yesterday, when it reached 160.08. The yen may fall to 109.50 a dollar today, Takami forecast.
The yen has climbed 14 percent since reaching the lowest in 4 1/2 years on June 22. Currency fluctuations may be exaggerated because U.S. stock and bond markets are closed today for the Thanksgiving holiday, said Takami.
The Japanese yen weakened against all 16 of the most- actively traded currencies as a rebound in Asian stocks gave traders confidence to buy higher-yielding assets funded with loans from Japan. It slid the most against the Australian and Canadian dollars as investors returned to so-called carry trades.
Stocks Rebound
The yen traded at 95.49 per Australian dollar from 94.39 yesterday in New York when it reached 93.72, the strongest since Sept. 11. It was at 82.32 against New Zealand's dollar from 81.50 yesterday when it touched 80.72, the highest since Sept. 18. The Nikkei 225 Stock Average rose 0.6 percent, erasing a loss of 1.1 percent.
``With stocks rebounding, Japanese investors are selling the yen,'' said Kenichiro Fujita, manager of derivatives marketing group in Tokyo at Aozora Bank Ltd., Japan's eight- largest publicly traded lender by assets. ``They are riding on the back of reduced risk aversion in the markets.''
The yen may fall to 109.50 a dollar today, Fujita forecast.
In carry trades, investors sell currencies in countries with low borrowing costs and buy assets in places with higher Interest rates, profiting from the difference between them. The risk is exchange-rate fluctuations erase those profits.
Subprime Losses
The U.S. currency weakened for a fifth day against the euro after James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told CNBC yesterday Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, face large credit losses because of subprime loans. Bank of Japan board member Seiji Nakamura said today ``downside risks'' to U.S. economic growth are rising as the housing recession worsens.
``The economy is doing badly because of subprime woes and the Fed is certain to cut rates in December,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank, Germany's second-largest bank. ``The bias is for the dollar to weaken.''
Dollar Records
The dollar traded at $1.4866 per euro and 1.1015 against the Swiss franc. The U.S. currency earlier dropped to a record low of $1.4873 per euro and earlier touched 1.1007 versus the franc. It may fall to $1.4900 per euro and 108 yen today, Muramatsu forecast.
The odds of the Fed cutting rates a quarter-percentage point to 4.25 percent on Dec. 11 were 90 percent, up from 68 percent a month ago, futures contracts traded on the Chicago Board of Trade show.
The yield advantage of U.S. two-year Treasuries over similar-maturity Japanese government debt shrank to 2.27 percentage points today, the narrowest since 2004, making U.S. assets less attractive to international investors. The two-year German bund widened its yield advantage over comparable-maturity Treasuries to 65 basis points, the widest since 2004.
The euro gained on speculation European Central Bank policy makers will today reiterate concern inflation will accelerate, adding to signs the central bank may need to resume raising interest rates.
ECB Policy Makers
Europe's single currency trimmed the past five days' decline against the yen to 0.5 percent after the yield premium investors earn on 10-year German bunds over similar-maturity Japanese government bonds increased to 2.60 percentage points today, the most in almost a week.
``Traders want to take advantage of Europe's yield premium over Japan's,'' said Hideaki Inoue, chief manager of derivatives and fixed-income investment in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly traded bank by assets. ``There's buying of the euro and selling of the yen.''
The euro may strengthen to 163.00 yen and $1.49 today, Inoue forecast.
ECB President Jean-Claude Trichet will speak in Paris and governing council member Mario Draghi will speak in Frankfurt.
Investors raised bets the ECB will increase borrowing costs from 4 percent this year. The implied yield on the Euribor December futures contract was 4.60 percent, up from 4.575 percent a week earlier.
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