Yen May Extend Drop as Rally in Global Stocks Feeds Risky Bets

A U.S. one dollar bill appears to fall

July 13 (Bloomberg) -- The yen may set a record low against the euro for a third day this week as a surge in global stocks signaled that investors are taking on risky bets, including so- called carry trades.

Japan's currency may extend its losses as investors resume selling the yen to fund carry-trade purchases of assets in countries with higher yields. Asian shares traded in the U.S. rose yesterday, suggesting the region will extend the global rally. Two of the three major U.S. benchmarks set record highs.

``With global equity sentiment stabilizing I think the Asian open will be positive and encourage investors back to the carry trades,'' said Mike Moran, a senior currency strategist at Standard Chartered Bank in New York. ``The yen will continue to weaken.''

The yen traded at 168.82 per euro at 6:13 a.m. in Tokyo, after touching 168.88 yen yesterday, the weakest since the euro's debut in January 1999. The Japanese currency traded at 122.39 per dollar. It may reach 173 per euro by the end of September, Moran said.

U.S. stocks surged yesterday after Wal-Mart Stores Inc.'s sales and a surge in exports improved prospects for economic growth. The Dow Jones Industrial Average and Standard & Poor's 500 index both set records.

Asian Shares

The Bank of New York Mellon Corp.'s Asia ADR Price Index, tracking the region's American depositary receipts, climbed 1.6 percent to 174.34, the highest since at least December 2001, when Bloomberg began tracking the benchmark.

The yen fell 0.3 percent to 96.02 per New Zealand dollar and 0.4 percent to 106.05 per Australian dollar after the Bank of Japan yesterday voted 8-1 to keep its benchmark rate unchanged at 0.5 percent, the lowest among major economies. Board member Atsushi Mizuno was the only member proposing a rate increase.

Investors see a 69 percent chance of an August rate increase by the Bank of Japan, according to Credit Suisse Group calculations based on the exchange of interest payments. The likelihood was 75 percent yesterday.

Industrial production fell for a third straight month in May and consumer prices excluding fresh food dropped 0.1 percent, a fourth consecutive monthly decline.

Japan's rate compares with Australia's 6.25 percent benchmark, New Zealand's 8 percent key rate and a benchmark of 4 percent in the euro zone. The yen has lost 26 percent versus the New Zealand dollar, 18 percent against the Australian dollar and 13 percent against the euro in the past 12 months.

The yen rallied 1.4 percent on July 10 as investors exited carry trades after Moody's Investors Service cut ratings on securities backed by subprime mortgages, sparking concern that weakness in housing would slow the broader economy. The S&P 500 dropped 1.4 percent that day.