Feb. 12 (Bloomberg) -- The yen rose against 13 of the world's 16 most-active currencies as widening credit-market losses spurred investors to reduce holdings of higher-yielding assets financed in Japan.

The currency gained against the New Zealand dollar and the Norwegian krone as traders reduced so-called carry trades. American International Group Inc., the world's largest insurer by assets, said it may have underestimated a decline in the value of derivative holdings. The euro traded near a three-week low versus the dollar before a report that will probably show the weakest German investor confidence in 15 years.

``I am quite yen-bullish,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets. ``Subprime debt problems are far from over. The markets will remain shaky, buoying the yen.''

The yen rose to 155.12 per euro at 12:53 p.m. in Tokyo from 155.30 late yesterday in New York. It climbed to 106.90 a dollar from 106.96. The euro traded at $1.4511 from $1.4519. The yen may advance to 95 per dollar by March 31, Kato forecast.

Japan's currency gained 0.2 percent to 84.26 per New Zealand dollar and 0.2 percent to 19.36 against the Norwegian krone. The Bank of Japan's benchmark interest rate of 0.5 percent compares with 7 percent in Australia, 8.25 percent in New Zealand, 5.25 percent in Norway, 3 percent in the U.S. and 4 percent in the euro region.

Default Risk

The risk of Asian companies and governments defaulting on their debt increased, according to traders of credit-default swaps. The Markit iTraxx Japan index of 50 investment-grade companies rose 10.5 basis points to 88.5 basis points in Tokyo, according to prices from Morgan Stanley. AIG said credit-default swaps it had issued declined by $4.88 billion in October and November, four times greater than it had previously indicated.

The Group of Seven estimates banks worldwide will suffer writedowns of $400 billion, German Finance Minister Peer Steinbrueck said on Feb. 9. They have posted about $146 billion of losses in the past year.

``The yen is likely to be bought as speculators unwind carry trades,'' said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co., Japan's fifth-largest broker by revenue. ``Everyone is concerned about how much money banks will lose.''

The yen may rise to 154.80 against the euro and 106.30 per dollar today, Soma forecast.

Yen Longs

Futures traders increased their wagers that the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on Feb. 8.

Hedge funds and other large speculators had 54,690 more bets on an advance in the yen than those on a drop on Feb. 5, the most in four years. The so-called net longs are sometimes seen as a contrary indicator.

``It should be hard for hedge funds to pile up yen longs further,'' said Joseph Kraft, head of capital markets in Japan at Dresdner Kleinwort, the investment bank owned by Germany's Allianz SE. ``Their risk appetite is not strong enough to increase one-way bets.''

The euro posted its biggest five-day loss in more than 1 1/2 years last week after the European Central Bank left rates unchanged and said the economic outlook had worsened. The ZEW Center for European Economic Research survey of German investor confidence probably fell to minus 45, the lowest since January 1993, according to a Bloomberg survey of economists.

Investor Confidence

``The data bode ill for Germany's economy and may revive expectations for an ECB rate reduction,'' said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA, a unit of France's second-largest bank by market value. ``It's a factor for selling the euro,'' which may decline to $1.4450 and 154.00 yen today, Saito forecast.

German two-year notes yielded 1.14 percentage points more than similar-maturity Treasuries, down from 1.17 percentage points on Feb. 8.

Fluctuations in exchange rates are also undermining investor appetite for carry trades. Implied volatility on one- month U.S. dollar-yen options was 12.09 percent today, compared with an average of 9.67 over the past year. Dealers quote the gauge of expectations for currency moves when pricing options.

In the carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. Rising volatility raises the risk that currency swings will erase those profits.

To contact the reporters on this story: Kosuke Goto in Tokyo at at kgoto2@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

Last Updated: February 11, 2008 23:09 EST