The yen weakened further on Friday, hitting a record low versus the euro and a 4-1/2 year trough against the dollar as investors chased high return assets at the expense of the low-yielding Japanese currency.

The high-yielding Australian and New Zealand dollars benefited from a continued vogue for carry trades, scoring fresh multi-year peaks against the yen and dollar.

Investors continued to test the Reserve Bank of New Zealand's resolve, keeping the kiwi's rally intact after the central bank's recent intervention to weaken the currency.

There may be setbacks where risk aversion creeps in but the carry trade will continue to support high yielders, Antje Praefcke, currency strategist at Commerzbank Corporates & Markets in Frankfurt.

Meanwhile, analysts said the Swiss National Bank's tactic of allowing its overnight repo rate to rise this week had hurt investors looking to use the low-yielding Swiss franc as a funding currency for carry trades. This lifted the Swissie strongly against the euro and dollar.

It seems over the last couple of days the SNB has allowed money market rates to trade sharply higher, maybe not providing enough liquidity and generating a bit of a squeeze on Swiss franc shorts, ING head of FX strategy Chris Turner said.

Maybe this is a sign that having 'talked the talk' over the past few weeks they (SNB) are slightly more serious. It seems that the SNB has some serious concerns over Swiss franc weakness, he added.

By 1148 GMT, the euro was up almost 0.6 percent on the day at 166.79 yen, a fresh record high according to Reuters data.

It was down 0.3 percent against the Swiss franc at 1.6573 francs, with analysts suggesting 1.66 francs as a level the SNB might be watching closely.

The dollar was up 0.3 percent at 124.13 yen, having hit a 4-1/2 year peak of 124.16.


The euro rose 0.3 percent to $1.3434, although gains were trimmed briefly after Germany's Ifo business climate index for June came in below expectations.

Analysts said the Ifo did not materially change expectations for at least one more ECB rate hike this year from the current 4 percent.

Amongst high yielders the Australian dollar rose to 105.35 yen, its highest in 16 years, while the kiwi hit a 20 year peak at 95.09 yen.

The kiwi stood at $0.7650, after hitting a 22-year post-float peak of $0.7667.

The Bank of Japan is expected to boost interest rates by August to a 12-year high of 0.75 percent, but the yen has continued to suffer as Japan's interest rates are much lower than those for other major currencies.

Analysts said that further losses could well be on the horizon, unless global market conditions received a serious jolt.

There is a clear risk of these moves extending significantly over the next month or so i.e. euro/yen up to 169 yen and dollar/yen up above 125. Global markets will need to show much instability to threaten this scenario, Mellon Bank head of FX research Ian Gunner said in a note.