Yen Rises as Japan Earthquake Boosts Bets on Repatriation; Euro Increases in Forex trading currencies

The yen rose against all of its major counterparts in Forex trading currencies, as concern in Japan of radiation leaks increased speculation that insurers will repatriate assets to pay for earthquake damages.

The dollar was little changed against the euro after the Federal Reserve maintained its asset-purchase program and kept borrowing costs at a record low. The Swiss franc advanced to a record against the greenback on demand for a refuge as Japan’s Prime Minister Naoto Kan said his government is doing everything it can to contain the radioactive leaks following last week’s earthquake and tsunami.

The yen appreciated 0.9 percent to 113.24 versus the euro at 3:20 p.m. in New York, from 114.22 yesterday. The yen advanced 0.9 percent to 80.88 per dollar, from 81.63. The Japanese currency strengthened to 80.22 Nov. 1, the strongest since April 1995, when it reached a postwar record of 79.75.

The dollar lost 0.1 percent to $1.4002 against the euro, after earlier adding as much as 1 percent.

The central bank kept borrowing costs at a record low of zero to 0.25 percent and said its purchases of $600 billion in Treasuries through June are needed to bolster growth and lower the 8.9 percent unemployment rate.

Stocks in the U.S. pared earlier losses, with the Standard & Poor’s 500 Index dropping 0.8 percent after falling as much as 2.7 percent. Japan’s Nikkei 225 (NKY) index posted its biggest two-day drop since 1987, falling 11 percent today to 8,605.15.

The franc appreciated 0.8 percent to 91.75 centimes per dollar after touching 91.41, the strongest level since at least 1971, when Bloomberg records begin.

Volatility in the $4 trillion-a-day foreign exchange market rose to the most in more than two months amid increased risk in Japan of radiation leaks. Implied volatility measured by a JPMorgan Chase & Co. index rose 9.5 percent to 12.12 today, the most since Jan. 10.

Currencies of commodity-exporting countries plunged as speculation increased the explosions at the Dai-Ichi nuclear power plant will damp demand for raw materials.
Weak Rand

South Africa’s rand, the worst performer among the major currencies, dropped 2.3 percent to 6.9772 per dollar.
Australia’s dollar weakened 1.8 percent to 99.11 U.S. cents and Canada’s currency fell 0.9 percent to 98.23 cents per U.S. dollar.

The yen may continue to strengthen as investors unwind carry trades amid reduced demand for assets from higher-yielding countries. In a carry trade, investors borrow where yields are low, such as in Japan, to fund purchases in higher-returning countries.
The carry trade of borrowing in yen and selling it to buy the currencies of Australia, Norway, New Zealand and Brazil has lost 47 percent this month, according to data compiled by Bloomberg. That compares with a return of 8.3 percent in January and February.