Yen Rises to Three-Week High Against Dollar as Stocks Tumble

The yen rose to the strongest in three weeks against the dollar after the first U.S. job losses in four years drove down stocks and prompted investors to repay loans in Japan they used to buy higher-yielding assets.

Japan's currency climbed against all 16 of its most-active counterparts as investors cut holdings of so-called carry trades. The yen also reached the strongest in almost two weeks versus the euro as a report on Sept. 7 showed U.S. non-farm payrolls unexpectedly decreased by 4,000 in August.

``Yen strength is winning out for now,'' said Sue Trinh, a currency strategist at RBC Capital Markets said in Sydney. ``There was a massive spike in risk aversion and fears for global growth. Yen funded carry trades were unwound with vigor.''

Japan's currency rose to 112.93 per dollar at 9:16 a.m. in Tokyo from 113.38 late in New York Sept. 7. The yen advanced to 155.54 per euro from 156.10 last week. It may fall as low as 111.60 per dollar and 154.50 per euro in the next 24 hours on a decline in Asian stocks, Trinh said.

The yen's advance may wane after a government report showed the Japanese economy contracted for the first time in more than two years.

Japan's economy shrank at an annual 1.2 percent pace in the three months ended June 30, below the government's initial estimate for a 0.5 percent expansion, the Cabinet Office said. The Nikkei 225 Stock Average opened 1.3 percent lower.

``The data may cause traders to push back expectations for a BOJ rate hike,'' said Seiichiro Muta, director of foreign exchange at UBS AG in Tokyo. ``The yen's gains may be limited.''

Dollar-Selling Market

The yen appreciated the most against New Zealand's dollar, a popular target for carry trades because of the nation's 7.75 percentage point interest-rate advantage over Japan. It rose 1.1 percent to 77.50 per New Zealand dollar while climbing 0.8 percent versus Australia's dollar to 92.94.

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 U.S. Trade Weighted Major Currency Index, measuring its performance against currencies of major trading partners such as Japan and Canada, fell to a record low of 76.68 on Sept. 7 as the Standard & Poor's 500 Index slumped 1.7 percent.

``This represents the current dollar-selling market,'' said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo. ``The dollar's depreciation may accelerate.''

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