Dec. 25 -- The yen traded near a six-week low against the dollar as a rally in global stocks and a decline in borrowing costs increased demand for higher-yielding assets funded by loans from Japan.
Japan's currency has fallen against nine of the 16 major currencies this year as speculation the Bank of Japan will refrain from raising interest rates spurred so-called carry trades. A U.S. report this week may show durable-goods orders rebounded, suggesting the world's largest economy is weathering the worst housing slump in 16 years. Financial markets in Australia, Hong Kong, Singapore, the U.K. and the U.S. were closed today for Christmas.
``There is no reason to buy the yen at the moment,'' said Kenichi Yumoto, senior dealer in Tokyo at Societe Generale SA, France's second-largest bank by market value. ``With stocks doing well, the yen-bearish sentiment is prevailing.''
The yen traded at 114.31 per dollar at 7:41 a.m. in Tokyo from 114.29 in New York yesterday, when it dropped to 114.49, the weakest since Nov. 7. Japan's currency was at 164.54 per euro from 164.49, when it touched 164.90, the lowest since Dec. 13. The dollar held at $1.4396 per euro from $1.4395.
The pound traded at 72.78 pence per euro, from 72.79 yesterday, when it fell to 72.91, the lowest since the European currency was introduced in 1999. Japan's currency may weaken to 114.50 a dollar today, Yumoto forecast.
The yen has fallen 4.5 percent against the euro this year, its eighth annual decline. Against the dollar, the yen is up 4.2 percent this year, its best performance since 2004.
Demand for Yield
Japan's currency has depreciated against 14 of its 16 most- actively traded counterparts this month as concerns eased that subprime losses will cut into carry trades. The yen has weakened 1.1 percent versus the euro and 1.3 percent versus the Australian dollar on speculation the Bank of Japan will keep its benchmark rate at 0.5 percent.
In carry trades, investors borrow funds in countries with lower lending rates and use the cash to buy debt in nations that offer higher returns. The U.S. benchmark rate is 4.25 percent, Europe's is 4 percent, Australia's 6.75 percent, New Zealand's 8.25 percent and South Africa's 11 percent. Japan's target lending rate is the lowest among industrialized nations.
Carry trades are considered risky because currency fluctuations can erase the profits earned.
The yen was at 99.60 against the Australian dollar from 99.59 in New York yesterday. It was at 87.67 per New Zealand dollar from 87.60. The yen was at 16.3660 against South Africa's rand from 16.3671 in New York.
BOJ Rate
U.S. stocks rose yesterday as a decline in the cost of borrowing in dollars and euros indicated that banks were more willing to lend to each other. The Standard & Poor's 500 Index increased 0.8 percent. It was the first time the index advanced three straight days since November.
``We have positive risk appetite across the board as fear of an imminent recession in the U.S. fades,'' said Boris Schlossberg, senior strategist in New York at currency dealer DailyFX.com. ``The bias is for the downside for the yen.''
The yen may decline to 115 versus the dollar by year-end, Schlossberg said.
The three-month London interbank offered rate, or Libor, for dollars fell for a 13th day, to 4.84 percent, according to the British Bankers' Association.
Falling Libor
The three-month euro interbank offered rate, or Euribor, dropped to 4.76 percent, the lowest since Nov. 28, the European Banking Federation said. The Federal Reserve and the European Central Bank loaned $30 billion in 35-day funds on Dec. 21 to ease a liquidity squeeze related to mortgage losses.
Merrill Lynch & Co., the world's largest brokerage firm, said today it will receive a cash infusion of as much as $6.2 billion from Singapore's Temasek Holdings and New York-based money manager Davis Selected Advisors LP.
The dollar has gained against 12 of the 16 major currencies in the past month on speculation that signs of U.S. economic resilience and accelerating inflation will discourage the Fed from cutting borrowing costs next month.
U.S. demand for cars, aircraft and other items made to last several years probably increased 2 percent in November after a 0.2 percent drop a month earlier, according to the median forecast of 65 economists surveyed by Bloomberg News. The Commerce Department will release the report on durable-goods orders on Dec. 27 in Washington.
Fed Inflation Gauge
The Fed's preferred measure of inflation increased 2.2 percent from November 2006, the biggest year-over-year gain since March, the Commerce Department reported last week.
Futures traders trimmed their bets that the euro will gain against the U.S. dollar in the week ended Dec. 18, according to the Commodity Futures Trading Commission. The difference in the numbers of wagers in favor of the euro -- the so-called net long position -- fell to 31,149 contracts from 63,374 contracts in the prior week. It's the biggest drop since June.
``The data reflects some sentiment change,'' as traders becomes less negative on the dollar, said Camilla Sutton, co- head of currency strategy in Toronto at Scotia Capital Inc.
Interest-rate futures on the Chicago Board of Trade indicate a 76 percent likelihood that the Fed will reduce its benchmark rate of 4.25 percent by a quarter-percentage point at its Jan. 30 meeting, compared with a 94 percent chance a month ago.
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