Yen gains for a second straight day amid MOF comment

NEW YORK (Reuters) - The yen rose broadly for the second straight day on Tuesday, moving away from multiyear lows against the dollar and euro after Japanese, South Korean and New Zealand officials raised concerns about the low-yielding currency's recent weakness.

Coupled with volatile equity markets and concerns about the impact of the U.S. housing market on the U.S. economy generally made investors more cautious about holding carry trades, where funds are borrowed in a low-yielding currency like the yen to invest in other, higher-yielding currencies.

Japanese finance minister Koji Omi told a news conference that it was important to be aware of the risks of acting one way, echoing Group of Seven warnings on one-way currency bets.

Concerns about carry trades were compounded by foreign exchange officials from South Korea and New Zealand who agreed they were worried about the adverse impact of the yen's weakness.

"There seems to be chatter in the market that the (Japanese) minister of finance may have slightly altered his message to the market," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida. "There have been several rounds of verbal intervention in the last few days."

In early morning New York trade, the dollar was down 0.6 percent at 122.95. It was the best day for the yen against the dollar since mid-April.

The euro was down almost 0.5 percent against the yen at 165.68, well way from a record high hit last week.

Against the dollar, the euro was up 0.1 percent on the day at $1.3474. The dollar also fell 0.1 percent to 1.2273 Swiss francs.

Finance minister Omi's comments follow similar warnings from the Bank for International Settlements in its annual report on Sunday that there was "clearly something anomalous" about the yen's recent weakness.

On top of that, the International Monetary Fund's chief economist, Simon Johnson, said building global inflation pressures should provide room for the Bank of Japan to raise interest rates, which in turn would gradually reduce the yen carry trade.

YEN CORRECTION SHORT-LIVED?

The popularity of carry trades has been a driving factor in the yen's broad slide to a 20-year low against the New Zealand dollar and a 15-year trough against the pound.

But it is the second time in the past few weeks that Omi has tweaked his usual comments on currencies at a regular news conference, having started to say earlier this month that he was watching the market carefully.

Analysts and traders said the Ministry of Finance was unlikely to conduct any yen-buying intervention, and unless it did so, further warnings may lose their effectiveness.

"At this stage, it (the yen move) merely looks like an ordinary correction rather than the start of a full-scale rout. For the latter to happen, there will most likely need to be a more pronounced retrenchment in global equity markets," said Ian Gunner, Mellon Bank head of currency research in London.

Volatile stock markets, in part stemming from concerns about the exposure of U.S. lenders to subprime mortgages in a declining housing market, have prompted a reduction in risk appetite around the world.