Yen gains

The yen rose broadly on Friday as turbulence in global equities and credit markets caused investors to shy away from risk, triggering an unwinding of carry trades. The yen extended its gains as a sharp sell-off in Asian equities dented investors' risk appetite, driving the high-yielding Australian and New Zealand dollars down about 1 percent against the Japanese currency.
The yen surged on Thursday after France's biggest listed bank, BNP Paribas, froze 1.6 billion euros ($2.19 billion) worth of funds, citing trouble with the US subprime mortgage sector. The news sent US and euro zone overnight borrowing rates up sharply on Thursday as banks scrambled for cash amid deepening concern about credit market losses, which pummelled equities markets and spurred a rush to unwind risky carry trades.
"The problem that's spooking the market is that we don't know where the fallout from credit squeeze will end," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Bank.
The dollar slipped 0.1 percent from late US trade to 118.06 yen, sliding back towards a four-month low of 117.19 yen hit on EBS earlier this week. Traders said buying by Japanese importers helped support the dollar in Tokyo.
The euro fell 0.2 percent to 161.30 yen, edging closer to a three-month low of 160.47 yen hit on electronic trading platform EBS last week. The single currency was steady against the dollar at $1.3663.
The Aussie fell 0.9 percent to 99.45 yen, while the kiwi dropped 1.2 percent to 87.64 yen and struck a three-month low of 87.30 yen. "The market is still carrying over the trend from London and New York," said a vice president for FX sales at a European bank.
"Financial markets are still in a bit of a panic and there is a continuation of risk reduction," he said. The tumult in global financial markets has stirred doubts about whether the Bank of Japan will raise interest rates later this month. But as long as heightened risk aversion persists, the yen is likely to be on solid footing regardless of whether the BoJ raises interest rates in August or not, market players said. "If the BoJ raises interest rates I think that will spur some yen buying and if the current situation persists and makes it hard for the BoJ to raise rates then the yen will be bought anyway," said Koji Fukaya, senior currency strategist at Deutsche Securities.