Yen gains on credit market fears

The yen saw gains Monday after Moody’s Investors Service said it will make credit rating cuts soon, sending investors away from risky investments on fears of further losses in credit markets.

The Japanese currency traded at ¥161.9749 to the euro in early afternoon in New York while it stood at ¥227.9431 to the pound and at ¥97.3705 to the Australian dollar.

Meanwhile, the US dollar weakened in relation to the yen and sterling after a new survey showed that manufacturing activity in the US in November fell closer to the tipping point between expansion and contraction in the sector with a reading of 50.8 in November.

A reading under 50 on the Institute for Supply Management’s factory index signals contraction in the sector.

In early afternoon trade in New York it took ¥110.4350 to buy a dollar while the greenback traded at $2.0640 to the pound and at $1.4667 to the euro.

Sterling was stronger as analysts decided it was less likely that the Bank of England will cut interest rates later this week and are more likely to keep rates on hold after a key manufacturing index gained in November, indicating that the UK economy has not slowed enough to justify a rate cut.

Despite the US dollar’s continuing weakness, more analysts expect that the greenback will rally next year, perhaps by as much as 7 percent in relation to the euro in 2008.

The analysts cite shrinking budget and trade deficits as evidence for their expectations.

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