Dollar rises vs yen on interest rate outlook

The dollar rose slightly in Asia Thursday amid expectations that Japan's interest rates would remain much lower than those in the U.S. or euro-zone.

The dollar was trading at 121.16 yen midafternoon, up from 121.01 yen late Wednesday in New York. The euro inched down at US$1.3504 from US$1.3506.

Recent indicators and comments by Federal Reserve Chairman Federal Reserve suggest that the U.S. central bank might lean toward raising rates rather than lowering them later this year. The European Central Bank on Wednesday raised its benchmark rate to 4 percent, but traders don't expect an imminent increase in Japan's key rate of 0.5 percent.

Earlier in the session, the dollar temporarily fell to 120.77 yen, on worries about falling Japanese stock prices and overnight drops on Wall Street.

But investors remain eager to take on yen-carry trade positions exploiting Japan's low borrowing costs, said Satoshi Okagawa, head of the foreign exchange forward trading group at Sumitomo Mitsui Banking Corp.

The carry trade involves borrowing yen at Japan's low interest rates and investing those funds in overseas assets with higher returns. Returning those funds to Japan would lift the yen.

"The yen's outlook is plain gloomy," he said, adding that the dollar could rise to 123.00 yen this month, while it's unlikely to go below 119.00 yen.

Meanwhile, the yen declined to a 15-year low against the Australian dollar after figures showed that Australia's jobless rate fell to 4.2 percent in May, the lowest since 1975. The Aussie dollar hit 102.71 yen, the highest since April 1992