FOREX-Yen shines, strikes 7mth high on tarnished USD

SYDNEY, Sept 14 - The yen was broadly higher on Monday, with talk of Japanese repatriation helping it strike a fresh 7-month high on a U.S. dollar which was undermined by falling U.S. Treasury yields.

Traders said the latest drop in Treasury yields had surprised many and forced Japanese investors in hybrid currency positions to sell dollars for yen.

With U.S. LIBOR rates LIBOR falling further below Japanese rates, the U.S. dollar was also fast becoming the preferred funding currency for carry trades.

Also weighing on the U.S. dollar was persistant talk of Asian central banks diversifying from U.S. dollars to other currencies and assets, including gold. Spot gold XAU= was holding above $1000 and ounce, lending some support to commodity currencies.

The U.S. dollar was weaker at 90.28 yen JPY=, having fallen to as low as 90.18 yen according to Reuters graphics. It was down from 90.64 yen late on Friday when it shed over 1 percent. Dealers say there are large option barriers at around 90 yen and gains could be capped around that level.

The 90 yen level is also considered to be psychologically important and a break below that level could pose a headache for Japanese authorities who have usually frowned upon a sharply higher currency in the past. [nSP189738]

The dollar got little support from improving U.S. consumer sentiment on Friday as prospects for a sustained global economic recovery and low U.S. borrowing rates continued to encourage investors to move out of the U.S. dollar into riskier assets and higher-yielding currencies.

"The U.S. dollar is fighting an uphill battle, while the yen is basking in the sun of renewed buying interest," said Matthew Strauss, senior currency strategist at RBC Capital.

"Important technical breaks, the dollar replacing the yen as a funding currency for buying riskier assets, debt concerns and questions about the dollar's reserve currency status are all weighing on it."

This month alone the U.S. dollar index or .DXY has lost 2.0 percent fall to its lowest in a year with greenback down against all the major currencies.

Trade tensions between the United States and China [ID:LD514738] added to the U.S. dollar's woes on worries China might retaliate by selling more of its U.S. dollar assets.

On Monday, the euro EUR= was firmer at $1.4591, having hit a 2009 high of $1.4634 on Friday. But the single currency ceded ground on the yen, trading at around 131.79 EURJPY=R, down from 132.17 yen late in New York on Friday.