Aug. 2 (Bloomberg) -- The yen declined against the 16 most- actively traded currencies as demand for riskier assets funded by loans in Japan increased.
The Brazilian real gained 1.2 percent versus the yen, which declined for a second day versus the dollar and euro. Investors sold the Japanese currency to buy assets in countries with higher interest rates in a practice known as the carry trade. Japan's 0.5 percent borrowing costs are the lowest among major economies.
``There has been a pretty distinct appetite for putting back on high-yielding trades and selling low-yielding currencies like the yen,'' said Richard Franulovich, a senior currency strategist in New York at Westpac Banking Corp.
The yen declined 0.3 percent to 163.09 per euro at 2:38 p.m. in New York. The Japanese currency traded at 119.13 per dollar, from 118.96 yesterday.
The yen declined as most U.S. stocks gained after consumer and media companies' earnings beat analysts' estimates.
``The rise of U.S. stocks is somewhat supportive of risk appetite, and we've seen the yen come off its rally as risk aversion eases,'' said Omer Esiner, an analyst with currency- trading company Ruesch International Inc. in Washington.
The yen advanced 2.7 percent last month versus the euro, the most since February 2006, and 3.7 percent against the dollar, the biggest increase since October 2004.
Stocks Gain
The Dow Jones Industrial Average climbed 0.2 percent to 13,389.85.
The carry trade has weakened the yen 3.7 percent this year against the euro as investors took advantage of Japan's borrowing costs. Japan's benchmark interest rate compares with 5.75 percent in the U.K., 5.25 percent in the U.S. and 8.25 percent in New Zealand.
New Zealand's dollar has increased 28.2 percent against the yen over the past 12 months.
The dollar weakened 0.2 percent against the euro on speculation a government report tomorrow will show U.S. companies added fewer jobs in July. The Labor Department may say the number of non-farm jobs rose by 127,000, down from 132,000 a month earlier, a Bloomberg News survey of economists shows. The jobless rate is forecast to stay at 4.5 percent.
``If the number's a disaster for the U.S. economy, it would cause everything to rally against the dollar,'' said Greg Anderson, senior currency strategist at ABN Amro Bank NV in Chicago.
A private report based on payroll data yesterday showed companies in the U.S. added the smallest number of jobs in four years. ADP Employer Services said companies added 48,000 jobs in July, less than half the 100,000 gain forecast according to the median estimate of 20 economists surveyed by Bloomberg News.
ECB Holds Rates
European Central Bank President Jean-Claude Trichet signaled interest rates will rise in September from a six-year high.
Trichet said ``strong vigilance'' is needed to guard against inflation, indicating the benchmark will rise from 4 percent.
``This puts a floor on the euro-dollar,'' said Matthew Kassel, director of proprietary trading in New York at ING Financial Markets LLC. ``It puts September on for the next rate hike.''
The euro traded at $1.3688, from $1.3667 yesterday.
``Rising oil prices, emerging capacity constraints and the potential for stronger wage dynamics imply upside risks to price stability,'' Trichet said at a press briefing in Frankfurt today after the bank left interest rates unchanged, as forecast. He has used the term ``vigilance'' in past statements to indicate a rate increase is imminent.
The currency may extend this year's 3.7 percent advance against the dollar as interest-rate futures show investors are betting the ECB will lift rates at least once more this year.
The implied yield on the December Euribor futures contracts rose to 4.51 percent from 4.48 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB key rate since 1999.
To contact the reporter on this story: Kim-Mai Cutler in New York at kcutler@bloomberg.net
Last Updated: August 2, 2007 14:40 EDT
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