FOREX-Yen gains broadly as risk aversion rises

Tue Mar 4, 2008 9:30am EST

NEW YORK, March 4 (Reuters) - The yen rose on Tuesday as weaker global equities encouraged investors to unwind carry trades, while the euro paused against the dollar after European officials voiced concerns about its latest rally.

Fears of a recession in the United States stemming from the subprime mortgage crisis have hammered the dollar, driving it to successive record lows against the euro and pushing it close to the psychologically important 100-yen mark.

"The yen is benefiting from risk aversion, which is the weakness in the equity markets across the globe. The second is the interest-rate compression between the dollar and the yen is starting to become very substantial," said Boris Schlossberg, senior currency strategist at DailyFX.com in New York.

Investors often borrow in the low-yielding yen to buy high-yielding currencies and assets. In periods of uncertainty, they tend to unwind these trades, boosting the Japanese currency.

In New York morning trade, the dollar was down 0.2 percent at 103.04 yen , after dipping to three-year troughs of 102.59 yen the previous session.

"As it gets closer to the 100 (yen) level you are going to see more speculative flows coming in, trying to test the Bank of Japan to see if they are willing to intervene at this point," said Schlossberg.

Remarks by Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, that the euro was overvalued against other currencies, halted the common currency's five-day run of record highs versus the dollar.