The Japanese Yen may continue to rise for its third consecutive day against the US Dollar as unease in the financial market spurs investors to reduce their holdings of the carry trade bought with loans from Japan. Japan is currently on a roll against the US Dollar and the Euro, rising up to 4.4 percent this year. The Group of Seven (G7) estimated a 400 billion dollar write down by global banks due to the losses incurred on the US subprime mortgages. ''The outlook for risk trades looks weak,'' said Camilla Sutton, co-head of currency strategy at Scotia Capital Inc. in Toronto. ''That should strengthen the yen.''
The Japanese Yen rise may show itself as a medium to longer term trend as fluctuation levels have also reduced the appetites for holdings of higher-yielding assets bought with loans from Japan. Implied volatility on one month US Dollar-Yen options rose to 12.2 percent yesterday, from 11.58 percent on Feb. 8. Dealers quote implied volatility, a measured gauge of expectations for currency movements, as part of pricing options. Japan's benchmark borrowing rate of 0.5 percent compares with 7 percent in Australia, 3 percent in the U.S. and 4 percent in the Euro region. This has made carry trading with Japanese loans popular over the past few years.
In forex trading, the Japanese Yen may rise for its third consecutive day trading at 106.96 Yen per US Dollar this morning in Tokyo, after a 0.31 percent gain yesterday that was the largest since the 30th of January. It traded at 155.31 per Euro, after advancing 0.3 percent.
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