The yen extended its biggest gain in almost two months against the euro as concern increased that credit-market losses will keep spreading, prompting investors to reduce riskier assets funded by loans in Japan.
The yen strengthened against 13 of the 16 most traded currencies after ratings cuts on Citigroup Inc. and Bank of America Corp. led to a sell-off in U.S. stocks and renewed concern subprime mortgage losses will weaken economic growth. A government report today may show job expansion in the world's biggest economy slowed last month.
``The subprime problems are not over yet at all,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second- largest publicly traded lender by assets. ` The yen will be buoyed by risk reduction.''
The yen traded at 165.07 per euro and 114.42 per dollar at 8:45 a.m. in Tokyo. The Japanese currency rose 1.1 percent against the euro and 0.7 percent versus the dollar yesterday. The dollar traded at $1.4426 per euro. The U.S. currency reached a record low of $1.4504 on Oct. 31.
The Japanese yen may rise to 113.80 per dollar and 164.50 per euro today, Kato forecast.
The yen reached a 14-month high of 111.61 versus the dollar on Aug. 17 on a rout in credit markets stemming from losses in securities tied to U.S. subprime mortgages.
Payrolls Report
U.S. employers added 84,000 workers to nonfarm payrolls last month following an increase of 110,000 in September, based on the median forecast in a Bloomberg News survey. The government will release the report at 8:30 a.m. in Washington.
U.S. stocks tumbled yesterday. The Standard & Poor's 500 Index fell 2.6 percent, the most since Aug. 9. Oil declined from a record high of $96.24 a barrel while gold slipped from the highest price since 1980.
``The yen is benefiting from this unwind in carry trade positions,'' said Joanne Masters, a currency strategist at Macquarie Bank Ltd. in Sydney. ``There's more bad news out there and U.S. stocks were hit pretty hard and Asian equities will have a soft lead.''
The currencies of Australia, South Africa and New Zealand fell the most against the yen yesterday. Australia's dollar weakened 3 percent while New Zealand's currency lost 2.6 percent. South Africa's rand declined 2.3 percent.
The currencies have been favored destinations for investors in the carry trade, which involves borrowing funds at low rates in other countries and buying higher-yielding assets elsewhere.
One-month implied volatility for the yen rose to 9.35 percent today, from 9.05 percent yesterday. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Higher volatility may discourage carry trades.
Australia's benchmark interest rate is 6.5 percent, compared with 10.5 percent in South Africa and 8.25 percent in New Zealand. The Bank of Japan kept its benchmark rate at 0.5 percent this week, the lowest among major economies.
Citigroup Inc., the largest U.S. bank by market value, was lowered to ``sector underperform'' from ``sector perform'' by analysts at New York-based CIBC World Markets led by Meredith Whitney, in a note to clients dated Oct. 31.
CIBC also reduced its rating on Bank of America Corp., the second-biggest U.S. bank, to ``sector perform'' from ``sector outperform.''
Credit Suisse Group yesterday announced $1.9 billion of writedowns of fixed-income securities and leveraged loans in the third quarter.
Stan O'Neal this week stepped down as CEO of Merrill Lynch & Co., the world's largest brokerage firm, after it wrote down $8.4 billion of bonds and loans during the quarter.
The pound touched $2.0875 yesterday, the strongest since May 1981 as speculation dimmed that the Bank of England will cut borrowing costs from a six-year high of 5.75 percent next week. ( Bloomberg )