LONDON, Aug 16: The yen drew strength from the turmoil on financial markets on Thursday, rising sharply against the dollar and euro as investors unwound risky “carry trades” that have depressed the Japanese currency.

In late European trade, the euro dropped to 152.78 yen from 156.79 yen late on Wednesday after falling briefing to 151.97 yen, its lowest level since March 6.

The European currency has fallen more than 10 per cent against the yen since its high on July 13 of 168.95 yen.

The dollar fell to 113.96 yen from 116.60 yen late on Wednesday.

The surging yen is benefiting from an end to the carry trade, which is when investors borrow in yen to take advantage of low interest rates in Japan before buying assets in other countries with higher interest rates.

This high-risk investment strategy, which led to relentless selling of the yen, is being shunned by investors who are rattled by losses on global stock markets.

“We are calling the end of the global currency carry trade, suggesting low yielding currency crosses such as Aussie dollar-yen, pound-yen and euro-yen will remain under pressure,” said a forex strategist at French bank BNP Paribas.

Also on Thursday, the euro was trading at $1.3405 against $1.3444 late on Wednesday as the US dollar continued to benefit from its status as a safe-haven in times of uncertainty.

The euro has lost more than 3 per cent of its value against the dollar since hitting a record high of $1.3852 on July 24.

The Australian dollar on Thursday fell to its lowest level against the US unit in four months, hitting 80.39 US cents after falling through technical support levels.

The turmoil on global markets is being caused by worries about a global credit crunch as more banks and investment funds around the world reveal their exposure to the slumping US sub-prime, or high-risk, home loan sector.

The fear is that banks will suspend normal lending practices as they move to cover their losses, thereby restricting access to credit for investors and companies.

Central banks across the world have since last week pumped tens of billions of dollars into the banking system, offering loans at lower rates to commercial banks to forestall a credit crunch that could damage economic growth.

In late European trading, the euro was changing hands at $1.3405, against $1.3444 late on Wednesday, 152.78 yen (156.79), 0.6761 pounds (0.6758) and 1.6319 Swiss francs (1.6387).

The dollar stood at 113.96 yen (116.60) and 1.2173 Swiss francs (1.2187).

The pound was being traded at $1.9833 (1.9890).

On the London Bullion Market, the price of gold fell to $662.25 per ounce from $667.25 late on Wednesday. —AFP