The yen headed for its biggest weekly gain in a decade against the
dollar as the global stock- market rout caused investors to sell
higher-yielding assets funded with the Japanese currency.
The yen was also on course to rise versus the euro by the most in any
week since the common currency's debut as Germany's DAX Index tumbled
more than 10 percent and Japan's Nikkei 225 Stock Average had its
biggest drop on record. Group of Seven finance ministers and central
bankers meet today in Washington to discuss a crisis that has wiped
more than $8 trillion off the value of global stocks this month and led
to interest-rate cuts and bank bailouts in most of the member nations.
``Fear has gone through the roof with equity market volatility trading
the highs,'' said Jeremy Stretch, senior strategist in London at
Rabobank International. ``That kind of environment is seeing investors
flee for safety and so we have seen the yen holding up remarkably well.
Risk aversion continues to be the name of the game.''
Coordinated interest-rate reductions by central banks in the U.S.,
Europe and Asia in the past two days failed to revive lending among
banks, putting stocks on course for their worst week in 30 years. The
London interbank offered rate, or Libor, for three-month loans rose to
4.75 percent yesterday, the highest level since Dec. 28.
``Global financial stability risks remain acute and questions are
mounting about the follow-on effects to global growth prospects,''
wrote Ron Leven, currency strategist at Morgan Stanley in New York, in
a research note yesterday. ``We are short dollar-yen, euro-yen and
pound-yen.''
The euro headed for a second weekly loss against both the dollar and
the yen on speculation the credit crisis in Europe will deepen,
prompting the European Central Bank to cut interest rates. The bank
lowered its benchmark rate two days ago for the first time in five
years.
The currency has fallen 7.3 percent versus the yen this week, the most
since the euro's debut in 1999. ECB policy makers said yesterday they
expect the region's economic growth will remain weak for some time.
``Right now, financial institutions in Europe appear to be in
trouble,'' said Hiroshi Yoshida, a foreign-exchange trader in Tokyo at
Shinkin Central Bank, Japan's fifth-largest publicly traded lender by
assets. ``The ECB may reduce rates further. The euro is likely to
retest the downside.''
The odds of a rate cut at the ECB's next policy meeting on Nov. 6 were
90 percent today, according to a Credit Suisse Group derivatives index.