Forex

Thursday morning in Asia, the Japanese currency slumped to a record low against the euro, as a rally in stock prices gave traders confidence to buy higher-yielding assets funded with loans from Japan and on expectations that the European Central Bank will hike interest rates in July. The yen also dropped to a new multi-year low against the franc and a new multi-month low against the aussie.

Japan's 0.5% interest rate is the lowest in the industrialized world, helping speculators get funds with low borrowing costs and invest where returns are higher. Speculators profit due to the spread between both rates. Nevertheless, currency fluctuations can erase profits between the two rates.

In early Asian deals on Thursday, the yen plunged to 169.36 against the euro, its lowest level since the single currency was introduced in 1999, surpassing its previous record low of 169.14 marked in July 2007.

The Euro's uptrend was buoyed by the European Central Bank President Jean-Claude Trichet's fresh concern about inflation and wage growth, strengthening expectations that the ECB would raise its main rate by 0.25 percentage points next week to 4.25 per cent.

"Upside risks to price stability over the medium term have intensified further over the past few months, in a context of very vigorous money and credit growth," Mr Trichet said yesterday. The ECB expects annual eurozone inflation, which rose to a record high of 3.7 per cent in May "to remain high for some time to come, before moderating only gradually in 2009".

The yen that largely bounced between 166.81 and 168.15 against the euro last week moved off the range earlier this week. The yen has dropped around 2% against the euro thus far this week.

During early Asian deals on Thursday, the Japanese yen slipped to a new multi-year low of 104.34 against the Swiss currency. The next downside target level for the yen is seen around 116.2 against the franc. The franc-yen pair closed trading at 104.23 yesterday.