March 15, 2011 / 8:54 PM / 8 years ago

FOREX-Yen rallies as investors exit riskier trades

* Fears grow on radiation catastrophe in Japan

* Yen edges toward all-time high; Swiss franc hits record

* Higher yielding Australian, New Zealand dollars tumble (Adds comment, details, updates prices)

By Wanfeng Zhou

NEW YORK, March 15 (Reuters) - The yen rose broadly on Tuesday, edging towards a record high against the dollar, as fears of a nuclear catastrophe in Japan sparked a sell-off in global stocks and commodities and prompted investors to close riskier trades funded by cheap borrowing in the yen.

The U.S. dollar fell as low as 80.60 on trading platform EBS JPY=EBS, not far from its record low of 79.75 struck in 1995. Traders said a New York daily close below 81.70 would signal a further drop toward the pair's historical low.

The dollar held steady against the euro and yen after the Federal Reserve said the U.S. recovery was gaining traction and rising inflation pressures will probably prove transitory as it stuck to its program of extraordinary monetary support. For details click on [ID:nN15230117]

“Japanese institutions are believed to be liquidating overseas investments,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. “And that forces other people to exit long carry trade positions and long risk positions. It really just becomes a negative feedback loop.”

“For the short term, dollar/yen is probably going to stay under pressure,” he said.

The dollar last traded at 80.71 yen JPY=, down 1.1 percent on the day. Traders noted support around 80.25, the November trough. Strong long-term support stands at the psychologically important 80.00 barrier and the 79.75 historical low.

Japan faced a potential catastrophe on Tuesday after a quake-crippled nuclear power plant exploded and sent low levels of radiation floating towards Tokyo, prompting some people to flee the capital and others to stock up on essential supplies. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For an illustration of nuclear accidents click: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The yen has soared since Japan’s devastating earthquake and tsunami on Friday partly on expectations Japanese insurers and companies will repatriate funds to help pay claims and reconstruction costs.

Nomura in a research note said the disaster may accelerate Japanese corporate repatriation of money from overseas to their Tokyo headquarters towards the end of March, as some domestic operations may need more cash for restructuring purposes.

“This is one of the factors to delay yen depreciation, in our view, but it is very hard to quantify at this stage,” the bank said.

The euro lost 1.1 percent to 112.99 yen EURJPY=EBS. The yen rallied particularly strongly against higher-yielding currencies such as the Australian and New Zealand dollars.

The Australian dollar slid to a nine-week low of $0.9815 against the U.S. currency AUD=D4 and a four-and-a-half-month low of 79.23 yen AUDJPY=R, according to Reuters data.

Asset managers, hedge funds, corporates and private clients were all net buyers of the yen for the first time since October, UBS said in a note on Monday. “Long yen positions are now considerable, and growing.” the bank said.

The yen earlier briefly trimmed gains as a 100-basis-point drop versus the dollar spurred vague talk of yen-selling intervention by Japanese authorities. Traders later said there was no intervention, but they were wary Japan may act to stem a sharp yen rise, especially if the dollar were to fall below 80 yen.

“It seems fairly clear right now that neither the BoJ nor the government want to see currency instability and will undoubtedly be prepared to intervene to prevent significant declines in the dollar,” said Michael Woolfolk, senior strategist at BNY Mellon in New York. “We think the line in the sand is at 80 yen. If we fall to there, they will come in.” (Additional reporting by Nick Olivari and Steven C. Johnson; Editing by Diane Craft)

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