Euro soars to record high against yen

TOKYO (AFP) - The euro surged to a record high against the yen in Asian trade Friday on expectations that local interest rates will remain low for some time, encouraging Japanese to send savings overseas, dealers said.

The European single currency was also hovering close to record highs against the dollar amid concerns that troubles in the US sub-prime mortgage sector could spread to the wider economy, they said.

The euro rose to 168.83 yen in Tokyo morning trade, off a high of 168.93 but up from 168.75 in New York late Thursday.

The single European currency was quoted at 1.3785 dollars, down from 1.3787 dollars in New York where it struck a a record high of 1.3798 dollars.

"Interest rate differentials are weighing heavily on sentiment towards the yen," said Masaki Fukui, senior market economist at Mizuho Corporate Bank.

"Although the Bank of Japan is very likely to raise its interest rate next month, the level (of Japanese rates) is still very low," Fukui said.

The BoJ left its benchmark interest rate on hold at 0.5 percent on Thursday, with many players expecting a rate hike in August.

Even so Japanese interest rates would remain much lower than those of other major economies.

The European Central Bank appears set to lift its key rate again from 4.00 percent in early September.

"The Japanese economy is not weak but recent economic indicators were not particularly strong, deterring players from holding yen," Fukui said.

The euro held firm against the dollar amid concerns about US sub-prime mortgage loans to people with poor credit histories, dealers said.

Rating agencies Standard and Poor's and Moody's this week both warned of potential credit downgrades for bonds backed by sub-prime mortgages, which could affect investors and banks that issued the obligations.

Thursday's rise in US shares helped contain the dollar's losses, dealers said.

The US Dow Jones Industrial Average soared over two percent to a record close Thursday as investors cheered renewed dealmaking and positive Wal-Mart results.