* Yen sells off on higher demand for overseas assets
* Better-than-expected data supports dollar vs yen
* Dollar down vs euro as risk appetite rises
* Deficit worries still nipping at dollar
(Updates prices, adds detail, comment, changes byline)
By Steven C. Johnson
NEW YORK, May 28 (Reuters) - The Japanese yen fell broadly
on Thursday as a spike in U.S. bond yields and surprisingly
strong U.S. economic data attracted Japanese investors into
overseas assets.
The dollar also remained under pressure against the euro as
strong U.S. durable goods data reduced the need to hold it as a
safe haven and worries about a soaring U.S. deficit left some
worried that the Federal Reserve would step up debt purchases.
For story on U.S. economic data see [].
Yields on 10-year U.S. government bonds have jumped more
than half a percentage point in the last two weeks, driven in
part by worries about the ever-expanding amount of debt needed
to fund a record $1.8 trillion U.S. budget deficit.
"There's a clear move out of the yen but the buying is not
only concentrated in U.S. dollars," said Win Thin, currency
strategist at Brown Brothers Harriman in New York. "Other
currencies such as the Australian dollar and some of the large
emerging markets are being favored as well."
U.S. 10-year Treasuries now yield around 3.7 percent
<US10YT=RR> against 1.5 percent for the Japanese equivalent
<JP10YT=RR>.
The dollar was last up 1.6 percent at 96.84 yen <JPY=>, its
highest in more than two weeks. It hit a two-month low at 93.85
yen last week. The euro soared 2.5 percent to 135.11 yen
<EURJPY=R>, according to Reuters data.
The euro rose 0.9 percent to $1.3954 <EUR=>, near the upper
end of a $1.3795-$1.3982 daily range, while sterling fell 0.2
percent to $1.5918 <GBP=>.
Data from the Ministry of Finance showed Japanese investors
returned from the Golden Week holidays and bought foreign bonds
last week. Retail investors poured $2.4 billion into mutual
funds on Wednesday, in the biggest single-day of fund launches
this year, industry sources told Reuters. []
Large flows of Japanese money into funds investing in
overseas shares and U.S. junk bonds may have added to selling
pressure on the yen against the dollar, currency dealers said.
"There is definitely a lot of money on the sidelines that
needs to be deployed back into global markets, and a lot of
those funds are going to go into risk assets" such as stocks
and high-yield bonds, said UBS currency strategist Brian Kim.
Earlier, a report showing new orders rose for long-lasting
U.S. manufactured items such as computers and appliances added
to hopes of modest improvement in the economy, further drying
up safe-haven flows into the dollar. []
The euro fell more than 4 percent against the dollar last
year as worries about a global recession and financial crisis
encouraged investors to dump stocks and higher-yield currencies
in favor of the dollar, seen as the safest store of value.
But with less desire for safe havens, investors have
started to focus on the soaring U.S. deficit, which has weighed
on the dollar.
The recent sharp rise in U.S. yields has come despite
decent to strong demand at three Treasury auctions this week,
which soothed some concern and supported the dollar.
But deficit worries won't disappear entirely, UBS' Kim
said. The bank sees the euro stuck around $1.40 over the next
month, though it expects a retreat to $1.35 in three months.
"We're a bit more constructive over three months because
asset allocation could shift in favor of the United States if
it leads the way out of the downturn," Kim said.
(Additional reporting by Vivianne Rodrigues; Editing by James
Dalgleish)
