The yen rose against the dollar, after the biggest decline since 1974,
as a drop in U.S. stock futures prompted investors to pare holdings of
higher-yielding assets funded with Japan's currency.
Japan's currency also gained against the Australian dollar and the
South African rand, two favorites of so-called carry trades. The dollar
fell versus the euro on speculation the Federal Reserve will cut rates
today before data that may show the world's largest economy contracted
the most since 2001.
``The yen reacts intensively to risk aversion and won't be under too
much pressure in the near future,'' said Lutz Karpowitz, a currency
strategist in Frankfurt at Commerzbank AG, Germany's second-biggest
lender. ``We're not expecting risk aversion to plummet at the same pace
as we saw it rising as it's going to take time to restore confidence in
the market.''
Futures on the Standard & Poor's 500 Index for December delivery
fell 2.1 percent to 919.70 following a 12 percent rally in the index
yesterday.
The Fed will lower its 1.5 percent target lending rate by a
half-percentage point at the conclusion of its two-day policy meeting
today, according to the median forecast of 69 economists surveyed by
Bloomberg News. Policy makers are scheduled to announce the decision at
2:15 p.m. in Washington. Futures on the Chicago Board of Trade show a
46 percent chance the central bank will cut rates by three-quarters of
a point.
U.S. consumer confidence slumped to a record low this month, a report
showed yesterday. Gross domestic product shrank by 0.5 percent in the
third quarter for its biggest decline since the 2001 recession, data
tomorrow may show, according to a separate survey.
``The Fed may move to a zero interest-rate policy,'' Masafumi Yamamoto,
head of foreign-exchange strategy for Japan at Royal Bank of Scotland
Group Plc in Tokyo and a former Bank of Japan currency trader, wrote in
a research note today. ``A worsening economic outlook suggests an
increasing likelihood of additional rate cuts.''
``What has been driving the yen stronger is not speculative positions
but the repatriation of Japanese investors and de- leveraging by global
investors,'' said Sophia Drossos, a strategist at Morgan Stanley in New
York. ``The trend is not over yet.''