Forex - Yen recovers as earlier falls prove short-lived; high-yielders lower

LONDON (Thomson Financial) - The yen recovered against major currencies after an earlier resumption in selling of the low-yielding unit proved short-lived.London trading began with a resumption in yen selling in a brief correction after last week's sharp gains, but the overall theme remains that of market participants continuing to reduce their risk exposure amid fears of a credit crunch."The dominating theme is that more people are taking risk off the table," said Standard Chartered analyst Marios Maratheftis.The yen rose sharply towards the end of last week as worries over the spill-over effects from US sub-prime lending troubles led to a sudden reversal in risk appetite, with carry trade positions being rapidly unwound.The carry trade is a risky strategy where investors borrow in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere. Its exceptional popularity prior to last week had taken the yen to record lows against the euro and multi-year lows against other major currencies.Maratheftis said the yen has been recovering across the board, though most of the gains have been against the major high-yielding currencies, such as the pound, the Australian dollar and the New Zealand dollar.The market is likely to remain volatile for the time being, with bouts of yen buying being temporarily being broken up from time to time as opportunistic sellers move back in at higher levels."People are looking for opportunities to get back in (to sell the yen)," he said. He added, however, that although he believes the carry trade will resume, there are no signs as yet of the current bout of risk aversion ending.Nevertheless, analysts pointed to the fact that there are still no fundamental reasons for buying the yen, with weak inflation data tying the Bank of Japan's hands as far as further interest rate rises are concerned."Interest rates are not going anywhere fast in Japan and on the return to more favourable market conditions, this fact favours the resumption of the yen's downtrend against a wide range of higher-yielding currencies," said Neil Mellor at the Bank of New York.Elsewhere, ongoing risk aversion continued to put pressure on high-yielding currencies, with the pound, the Australian dollar and the New Zealand dollar all resuming a downward trend after a brief respite earlier today.London 1223 GMT London 0817 GMT
US dollar
yen 118.32 down from 118.94
sfr 1.2029 down from 1.2055
Euro
usd 1.3669 up from 1.3664
stg 0.6754 up from 0.6737
yen 161.79 down from 162.54
sfr 1.6447 down from 1.6474
Sterling
usd 2.0238 down from 2.0275
yen 239.55 down from 241.19
sfr 2.4340 down from 2.4450
Australian dollar
usd 0.8481 down from 0.8529
stg 0.4190 down from 0.4207
yen 100.38 down from 101.46
New Zealand dollar
usd 0.7581 down from 0.7661
yen 89.70 down from 91.14