Yen slides to hit 4-1/2-year low against dollar

TOKYO, June 22 (Reuters) - The yen fell to a 4-1/2-year low against the dollar on Friday as Japanese investors dumped their low-yielding currency for foreign assets and market players kept using the unit to fund carry trades.

The Australian dollar struck a 16-year peak against the yen and sterling hit a 15-year high as traders cited steady foreign currency buying by new Japanese investment trusts drawing in funds from households receiving summer bonuses.

The dollar held broad gains made after a survey of U.S.

Philadelphia-area factory activity posted the strongest growth since April 2005, reinforcing expectations the Federal Reserve will keep interest rates on hold at 5.25 percent.

The Bank of Japan is expected to boost interest rates as early as August to a 12-year high of 0.75 percent, but the yen continued to suffer as Japan's interest rates are much lower than those for other major currencies.

''A series of investment trust funds for Japanese individual investors is on sale this week as well as next week, and that may push the yen to fall further,'' said currency strategists at JPMorgan Chase in a note to clients.

JPMorgan Chase estimated the size of yen selling for this week and next could amount to 500 billion yen, or about $4 billion.

Total foreign asset holdings of investment trusts have surged by 5.725 trillion yen in the first five months, or nearly $10 billion each month -- putting constant downward pressure on the yen.

The dollar rose 0.2 percent from late U.S. trade to 123.95 yen on electronic trading platform EBS, holding at its highest since December 2002.

The euro was up 0.1 percent at 165.95 yen edging towards the all-time high of 166.12 yen hit earlier this week.

A trader at a Japanese trust bank said he saw constant flows from investment trusts buying the euro and currencies of emerging markets that have become popular recently.

The higher-yielding Australian and New Zealand dollars have long been favourites of Japanese investors and are used for carry trades -- selling low-yielding currencies like the yen in order to buy higher-yielding currencies.

The Australian dollar rose 0.1 percent to 104.95 yen to hit highest levels in 16 years, while the kiwi hit the highest level in 20 years at 94.71 yen The kiwi changed hands near $0.7632 close to the 22-year peak of $0.7660 struck the previous session as traders kept an eye out for potential selling intervention from the New Zealand central bank following such action in the past two weeks.

The euro was little changed at $1.3390 after dipping to $1.3372 the previous session as an unexpectedly large gain in Philadelphia Fed's regional factory index provided a mild boost to the dollar.

With no major U.S. economic data due on Friday, the market's main focus will be the Ifo survey of business sentiment in Germany, the euro zone's largest economy.

The business climate index for June is expected to dip to 108.4 from 108.6 in the previous month.

REUTERS KK VC0944