Wednesday June 27, 2007 - 09:28:14 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen up broadly as risk appetite ebbs
FOREX-Yen up broadly as risk appetite ebbs
Wed Jun 27, 2007 4:34 AM ET
(Changes dateline, byline, adds quotes, updates prices)
By Simon Falush
LONDON, June 27 (Reuters) - The yen rose broadly on Wednesday and high yielders dipped as worries about the U.S. subprime mortgage sector dimmed appetite for the carry trade.
Falling stock markets, due partly to concerns about the exposure of U.S. lenders to subprime mortgages, have reduced investor interest in risky assets around the world.
The VIX index, which tracks equity market volatility, rose to 18.89 on Tuesday <.VIX> -- its highest level since mid March. U.S. and Asian markets closed down, while European shares opened lower [.EU].
"Equity markets are down across the board with renewed concern about the U.S. sub-prime mortgage market. This is hitting risk appetite and causing the yen to rally," said Kamal Sharma, currency strategist at Bank of America.
At 0757 GMT, the yen was up 0.7 percent versus the euro at 164.64 yen . It was up half a percent versus the dollar to 122.56 .
Analysts said the yen's strength was bolstered by changes in in the Japanese government, with Naoyuki Shinohara set to replace Hiroshi Watanabe as vice minister for international affairs. "Markets think that it might herald a more proactive approach with Japan more actively trying to strengthen the yen," Sharma said.
Watanabe had been seen as more opposed to currency intervention than his predecessors.
NEW ZEALAND INTERVENTION
The high yielding currencies fell across the board with the New Zealand dollar dropping half a percent to US$0.7611 while the Australian dollar slipped 0.6 percent to US$0.8405 .
The Reserve Bank of New Zealand said its market interventions were aimed at moderating the rise in the currency, not defending a level.
"(The intervention) sends a signal that, in the bank's view, the exchange rate is out of alignment with the economic fundamentals," deputy governor Grant Spencer said in an article released overnight [nWEL184455].
The New Zealand dollar fell more than 1 percent versus the yen to 93.34 .
The dollar was up 0.2 percent versus the euro to $1.3427 . The U.S. currency drew some support thanks to buying by Japanese retail investors, such as those trading with margin accounts, traders said.
The popularity of carry trades -- borrowing funds in low-yielding currencies such as the yen to buy higher-yielding assets -- has been one of the driving factors in the yen's broad slide that pushed it to a 20-year low against the New Zealand dollar and a 15-year trough against the pound late last week.
CARRY TRADE JITTERS
The struggles of two hedge funds managed by Bear Stearns have refocused attention on defaults in U.S. subprime mortgages, and on whether such problems will have an adverse impact on the broader U.S. economy and financial markets.
Such jitters have prompted investors to unwind some carry trades by buying back the low-yielding yen against higher- yielding currencies.
"Should global equities continue to sell off and investor risk aversion persist, yen will likely mark further gains in the very near-term," JP Morgan said in a research note. "However, we believe yen-selling by Japanese retail investment outflows (will) limit yen upside.
U.S. data due later this session includes durable goods orders data for May. The Federal Reserve is widely expected to keep interest rates steady at 5.25 percent at a two-day policy meeting that starts later on Wednesday.
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