Yen hits 4-1/2 year low vs dlr, carry buoys kiwi

LONDON, June 21 (Reuters) The yen hit a 4-1/2 year low against the dollar on Thursday while the New Zealand dollar surged to 22-year peaks as risk-hungry investors sold the low-yielding Japanese currency in favour of high return assets.

The dollar was a touch firmer against the euro with the focus on the U.S. interest rate outlook. However, the data calendar is thin, with a business activity survey by the Philadelphia Federal Reserve due at 1600 GMT the main highlight.

The kiwi's rise at the expense of the yen is a classic illustration of the market's exploitation of carry trades.

Investors see Japanese interest rates remaining the lowest in the industrialised world, in contrast with New Zealand where borrowing costs are among the highest at 8 percent.

BOJ Deputy Governor Toshiro Muto reiterated on Thursday that the central bank would adjusted rates gradually, which analysts said kept weak yen sentiment intact.

Investors have been testing the New Zealand central bank's resolve to sell the kiwi again after it intervened in the market for the second time in a week on Monday.

''What you have (in New Zealand) is a contradiction between an intervention policy and a monetary policy,'' said Hans-Guenter Redeker, chief foreign exchange economist at BNP Paribas.

By 1150 GMT the dollar was up 0.1 percent on the day at 123.57 yen, having hit a 4-1/2 year peak of 123.78, according to Reuters data.

The New Zealand dollar had risen to 0.7658, a 22-year post float high, before trimming gains to $0.7630. It also rose to a 20-year high against the yen.

The euro was steady at 165.45 yen, within sight of this week's record peak, while it was down 0.1 percent against the dollar at $1.3381. Data showing euro zone services growth at a 12-month high in June had little impact on the single European currency.

HIGH-YIELDERS UP Higher-yielding currencies generally drew support. Sterling, which offers the highest interest rate in the G7, hit a 3-1/2 month high against the euro at 67.13 pence.

The pound was extending gains from Wednesday when the Bank of England's minutes showed bigger-than-expected opposition to keep interest rates on hold this month. The minutes fanned expectations the BoE could raise rates as soon as July.

BNP's Redeker said that sterling could well vault the $2 level again due to renewed concerns over inflation.

''Sterling will stay there (above $2) for a while until people get less concerned about inflation. When the reputation of the (BoE) monetary policy committee comes back, then sterling will come back (down),'' he said.

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