Yen hits 4-1/2-month high

The yen hit a 4-1/2-month high against the dollar on Wednesday as falling Asian stocks heightened fears about global credit market woes and prompted investors to chop more risky positions in carry trades.
The single European currency, sterling and the Australian and New Zealand dollars fell to their weakest points in roughly four months against the yen as investors continued to trim long positions in currencies that have been climbing due to their high yields.
The rise in the yen intensified as the Nikkei share average fell more than 2 percent by midafternoon, in tandem with falls in other stock markets in the region.
The euro slipped to a six-week low against the dollar as recent problems at European banks due to US subprime mortgage problems raised speculation that the European Central Bank may not lift interest rates next month. The dollar was supported against such currencies as risk reduction prompted short-covering in the US currency.
"High-yielders are vulnerable to fall on any bad news," said Shogo Nagaya, forex manager at Nomura Securities. Worries about a credit squeeze simmered on news that Canadian structured finance firm Coventree Inc had been affected by the subprime turmoil, while Sentinel Management Group Inc in the United States sought to prevent clients from withdrawing cash from investments.
Signs that the days of easy credit are ending have frozen demand for risky positions such as the yen carry trade, and analysts said high-yielding currencies that have benefited from the strategy would stay under selling pressure. Market players said moves in the Tokyo market may be exaggerated due to limited liquidity at the peak of the Japanese summer holiday season.
The euro fell to $1.3495 from $1.3533 in late New York trade to hit its lowest level since late June. The single currency stayed under pressure as investors reckoned that volatility in recent weeks and losses suffered by banks in Europe stemming from subprime problems may prevent the ECB from lifting interest rates in September.
The euro fell to 157.97 yen at one point, its lowest level since early April. The dollar fell as low as 116.95 yen on electronic trading system EBS, its lowest level since late March.