The Japanese yen fell on Friday and was set for its worst one-day drop versus the dollar in over five months as steps by U.S. authorities to boost morale in distressed financial markets revived global appetite for risky trades.

 

The U.S. Treasury Secretary Henry Paulson urged the government to spend billions of dollars to deal with toxic mortgage assets choking the financial system, while the Federal Reserve said it would provide loans for purchases of high-quality asset-backed commercial paper from money market funds. Those developments pressured the yen, which had tapped safe-haven flows from the markets turmoil, sparked by the collapse of Lehman Brothers Holdings this week and forced the government to bail out insurer American International Group. The dollar posted its biggest one-day gain against the Japanese yen since early April and rose to a 10-day peak of 108.04 before dropping, ended up 1.7 percent at 107.45.

 

The euro also benefited by the risk appetite and rose to 155.54 against the yen at one point before closing at 155.45, up 2.8 percent on the day. That buoyed the single currency against the dollar and rose 1.1 percent to as high as 1.4499 in late New York, ended at 1.4467.

 

In other currencies, sterling jumped to a two-week high of 197.07 against the yen, and climbed to a session high of 1.8387 versus the dollar, ended at 1.8318 while higher-yielding currencies such as the Australian dollar also surged as investors regained some confidence. The Aussie dollar had its best one-day gain against the U.S. dollar in almost 10 years and rose to an intra-day high of 0.8362, last traded up 4.1 percent at 0.8338.

 

U.S. stock markets powered higher on Friday and Dow Jones industrial average index ended up 368 points or 3.35 percent at 11,388, while crude oil’s futures rose above $100 per barrel in its biggest three-day rally in a decade and spot gold climbed back above $870 per ounce after selloff from Thursday’s high of $919.00 to $825.30 earlier. The three-month U.S. Treasury bill rate jumped to about 1.08 percent at one stage from around 0.26 percent in response to the measures to thaw the credit markets.

 

Next Monday, Bank of Japan will release minutes of its August 18-19 policy meeting while ECB President Jean-Claude Trichet will speak in Bratislava at 07:00GMT. Economic data releases include U.K. Rightmove house prices index, Japan All industrial index, and Canada retail sales data.