Yen rises on risk aversion, carry trade worries

TOKYO, June 27 (Reuters) The yen rose broadly on Wednesday, as risk aversion stemming from worries about the US subprime mortgage sector and jitters about possible jawboning by Japanese officials prompted buy-backs of the low-yielding currency.

Volatile stock markets, in part due to concerns about the exposure of US lenders to subprime mortgages in a declining housing market, have reduced investor interest in risky assets around the world.

In addition, investors were on edge following the previous session's comments by Japanese Finance Minister Koji Omi, who warned that ns in risky assets,'' said a trader for a Japanese bank.

That includes yen carry trades, the trader said, adding that the yen was likely to stay on solid footing against higher- yielding currencies such as the euro for a while.

The dollar fell about 0.23 per cent to 122.91 yen as of 2357 GMT, down from around 123.25 yen in late US trading on Tuesday.

The euro dipped around 0.27 per cent to 165.32 yen compared to around 165.80 yen in late New York trading.

Against the dollar, the euro fell slightly to $1.3449 from around $1.3455 in late New York.

The popularity of carry trades -- borrowing funds in low-yielding currencies such as the yen to buy higher-yielding assets -- has been one of the driving factors in the yen's broad slide that pushed it to a 20-year low against the New Zealand dollar and a 15-year trough against the pound late last week.

Tuesday's comments by Japan's finance minister echoed remarks by officials at Group of Seven meetings in the past year referring to carry trades and suggested some concern about the pace of the yen's slide.

Market players will be watching to see if Japanese Finance Ministry officials make similar comments from here on, said a trader for a major Japanese trading house.

Traders said the Ministry of Finance was unlikely to conduct any yen-buying intervention, however, and that unless it did so further warnings would eventually lose their effectiveness.

Demand for overseas currencies and assets by Japanese retail investors via currency margin trading and investment trusts were likely to slow the yen's advance, traders said.

REUTERS LPB RAI0904