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Yen Rises to 13-Year High Against Dollar as Carry Trades Cut

By Stanley White
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Oct. 24 (Bloomberg) -- The yen climbed to a 13-year high against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with Japanese currency.

The yen also jumped against the euro after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. Standard & Poor's Ratings Services yesterday threatened to cut Russia's debt ratings.

``I can't rule out the scenario where the yen rises even faster than I had anticipated,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third- biggest lender. ``Speculators are unwinding carry trades. This risk aversion is coming from the credit crunch and the chance of a global recession.''

The yen rose to 95.45 per dollar, the highest level since 93.28 on Aug. 15, 1995, and traded at 95.50 at 12:37 p.m. in Tokyo from 97.31 late yesterday in New York. Against the euro, it climbed to 121.80 from 125.89. The euro bought $1.2768 from $1.2934. The yen may rise to 90 per dollar by the end of March, Umemoto said.

The Australian dollar fell 4.6 percent to 62.14 yen from late yesterday in New York. New Zealand's dollar declined by 4.2 percent to 55.46 yen.

The yen touched a post-World War II high of 79.75 against the dollar on April 19, 1995, prompting the Group of Seven nations to intervene that year by buying the greenback to stabilize currency markets. The G-7 is comprised of Canada, France, Germany, Italy, Japan, the U.K. and the U.S.

In carry trades, investors borrow in currencies with low interest rates and invest in nations with higher rates. Japan's target rate of 0.5 percent compares with 6 percent in Australia and 6.5 percent in New Zealand.

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