The Yen Declines as stocks gain and the carry trade increases

The yen fell on speculation that Lehman Brothers Holdings Inc. will find a buyer, giving investor’s confidence to buy higher-yielding assets funded in the Japanese currency. The yen snapped four days of gains against the euro as any government-brokered takeover of the bank would help support credit markets. U.S. officials, who are helping Lehman identify potential acquirers might announce a take-over before the 15th of September. ``There's likely to be a buyer somewhere for Lehman,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``Risk appetite may improve a bit. The yen could be sold.'' The USD/JPY is currently trading at 107.50 as of 7:38am, GMT.

Bank of England Governor Mervyn King, 60, told lawmakers in London yesterday it's an ``illusion'' that the government could rescue the housing market without jeopardizing taxpayers' money and warned that increases in government spending risk fuelling inflation expectations. ``The governor seemed to be firing some warning shots,'' said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. ``It was interesting the amount of emphasis he put on the implications of the taxpayer underwriting the mortgage-lending process.'' The GBP/USD is currently trading at $1.7682 as of 8:07am, GMT.

The Australian dollar rose as Asian equities rallied, increasing investors' appetite for higher-yielding assets. The currency climbed from two-year lows against the yen as Asian stocks gained for the first time in four days on speculation a possible purchase of Lehman Brothers Holdings Inc. will help stabilize markets. That gave investors confidence to return to so-called carry trades. Australia's currency also advanced as traders pared bets the central bank will reduce interest rates next month. ``We've got quite a strong rebound under way,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``Any resolution of the Lehman issue will see risk appetite increased and you're seeing that now on the yen crosses like the Aussie-yen.'' The AUD/USD is currently trading at 0.8090 as of 8:14am, GMT.

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