Dollar, euro fall sharply against yen amid market turmoil

TOKYO (AFP) - The dollar and euro fell sharply in Asian trade Thursday against the yen, sliding to four-month lows as investors ran for cover from turmoil on equity markets over US housing woes, dealers said.

The stock market rout made investors shun risk and unwind their "carry trades" -- borrowings in low-yielding currencies such as the yen that were meant for investment in regions with higher interest rates.

The dollar dropped to 116.16 in Tokyo morning trade from 116.60 in New York late Wednesday. It briefly slipped down to 115.98 yen, a five-month low.

The euro dipped to 1.3395 dollars from 1.3444 and to 155.58 yen from 156.79, also a four-month low.

Asian stock markets were being battered again Thursday after an overnight fall on Wall Street triggered by anxiety about default housing loans in the United States which had been issued to customers with patchy credit histories.

"Market confidence is shrinking with players unable to calm down.
The depth of the problem remains difficult to assess and so risk-unwinding and aversion are expected to continue," said Kazuhiko Shibata, manager at Dresdner Bank's Tokyo branch.

The Japanese currency also continued to strengthen against high-yielding currencies that have recently been strong such as the British pound and the Australian and New Zealand dollars.

Japan has the lowest interest rates of any major nation under a monetary policy aimed at ending a nearly decade-long problem of deflation and stimulating an economy recovering from recession in the 1990s.

Japanese banks, known for their conservatism, are believed to have less exposure to US default loans, another reason why the yen is being treated as a safe haven, dealers said.

Falling metals prices have also made players "concerned of global growth stopping abruptly," National Australia Bank Capital strategist John Kyriakopoulos wrote in a note to clients.

Central banks since last week have moved to pacify investors by pumping liquidity into money markets.

The Bank of Japan on Thursday injected 400 billion yen (3.4 million dollars) into the banking system after draining a total of 3.6 trillion yen the previous two days.

The US Federal Reserve on Wednesday also infused seven billion dollars in cash to support the financial system.

But the injections have only provided temporary relief, dealers said.

"Investors are worried about a credit squeeze in the long term. At the moment, the liquidity injection is good for the banking system, but beyond that there are worries. It's not like cash is being handed out to funds," Shibata said.

The global jitters have also lowered expectations of rate hikes by the European Central Bank and the Bank of Japan, whose policy board meets next week.

The market is also waiting to see if the US Federal Reserve will cut rates next month.