The yen rose against the dollar and euro on Friday as investor moved away from stocks and high yielding currencies.

The moves were prompted by a Merrill Lynch downgrade of the two largest home lenders, Fannie Mae and Freddie Mac.

The development, coupled with yesterday´s data that factory activity fell in the New York region, set the table for increased concern about the state of the U.S. economy as it moves toward the brink of a recession.

The yen rose to 107.22 yen per dollar at 4:32 p.m. in New York from 107.40 late yesterday. The yen gained to reach 159.02 per euro from 159.10. Meanwhile the dollar was down to $1.4830 per euro.

With softer economic indicators, investors are betting that the Federal Reserve will continue to cut lending rates in order to give a boost to the economy.