Nov. 14 (Bloomberg) -- The yen fell for a second day against the euro as Asian stocks rose, giving traders confidence to buy high-yielding assets with loans in Japan.
Investors were encouraged to return to so-called carry trades after Goldman Sachs Group Inc. yesterday said it doesn't plan any significant writedowns related to subprime mortgages. The yen slid the most against the Australian and New Zealand dollars today among the 16 most-actively traded currencies.
``The yen weakness will probably continue today as equities will be well bid,'' said Greg Gibbs, a currency strategist in Sydney at ABN Amro Holding NV, the biggest Dutch bank.
The Japanese currency traded at 162.62 per euro at 10:01 a.m. in Tokyo compared with 161.96 in late New York yesterday when it fell 1.9 percent. Japan's currency was at 111.19 against the dollar from 110.90 yesterday. It touched 109.13 per dollar on Nov. 12, the strongest since May 2006.
The yen fell 0.9 percent to 100.23 per Australian dollar and 0.8 percent versus New Zealand's to 84.93. The two currencies are popular targets of carry trades because of their higher interest rate premium over Japan.
Volatility implied by dollar-yen options expiring in one month, with a strike price near the current price fell to 14.20 percent from 14.35 percent yesterday. Traders quote implied volatility, a measure of expectations for future price swings, as part of pricing options. Lower volatility may encourage carry trades as it exposes these bets to less currency risk.
Investor Confidence
Japan's currency has still risen against all 16 major counterparts this month as concerns more banks will join Citigroup Inc. and Morgan Stanley in reporting losses related to bad U.S. home loans shook investors' confidence in carry trades.
In carry trades, investors borrow in a country with low interest rates and invest in those with higher borrowing costs, profiting on the yield difference. The trades are considered risky because the currency's fluctuations can erase profits earned on the gap between the two rates.
Borrowing costs in Australia and New Zealand are 6.75 percent and 8.25 percent, respectively. The Bank of Japan held its overnight lending rate at 0.5 percent yesterday, the lowest among major economies.
The Nikkei 225 Stock Average gained 2.1 percent. The Standard & Poor's 500 Index rose 2.9 percent yesterday, the biggest gain since the Federal Reserve cut borrowing costs on Sept. 18.
European Growth
The euro may rise on speculation a European report today will show economic growth in the 13 nations rebounded in the three months ended Sept. 30.
The currency may gain for a second day against the dollar and the yen on prospects the economy is picking up steam, backing the case for the European Central Bank to raise interest rates. The International Monetary Fund this week said the ECB may need to resume increasing borrowing costs to curb inflation if the recent financial market turmoil eases.
``The euro-zone economy seems to be doing well,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. ``A rate hike is possible. The euro is likely to strengthen.''
The euro traded at $1.4627 from $1.4602. It may climb to $1.4650 today, Ishikawa forecast.
The 13-nation region's economy grew 0.6 percent last quarter, after a 0.3 percent increase in the previous period, according to a Bloomberg News survey of economists. The European Union's statistics office releases the report at 11 a.m. in Luxembourg.
Full story at Bloomberg
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