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FOREX-Yen surges in early Asia, euro tumbles

Reuters - Friday, September 5

SYDNEY, Sept 5 - The yen surged in early Asian trading on Friday, hitting 13-month highs on the sliding euro, as investors fled leveraged carry trades amid falling share markets and rising risk aversion. Traders were bemused by the violence of the move which came in the illiquid period between New York's close and Tokyo's opening.

"What I am seeing today is a severe amount of post-New York capitulation and risk aversion," said Kathy Lien, director of currency research at GFT Forex in New York. "The reduced volume is certainly exacerbating the move. But it's capitulation pre-Asia."

The euro collapsed to 151.12 yen <EURJPY=R> having stood at 153.56 late in New York on Thursday and near 157.00 the day before. Even the U.S. dollar, strong against most other currencies, dropped to 106.01 yen, from 107.14 in New York.

Analysts said it looked like investors were bailing out of more leveraged carry trades, positions funded by borrowing yen at low rates to buy higher yielding currencies and commodities.

As a result the yen leapt to a 13-month high on the Australian dollar <AUDJPY=R>, which in turn dragged the latter down sharply across a range of currencies.

Escalating worries about global economic growth has sent risk aversion soaring and hammered equities on Thursday, knocking the Dow Jones industrial average <.DJI> down 3 percent. "This is not a flight to quality, it is simply a flight," said Alan Ruskin, chief international strategist at RBS Greenwich Capital. "Gold for example has failed to benefit, cash is king -- even the greenback, warts and all, or the yen, zero rates and all."

The euro was a major casualty falling to $1.4226 <EUR=>, from $1.4329 late in New York on Thursday and 1.4500 the day before.

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