May 6 (Bloomberg) -- The Japanese yen may rise to 100 per dollar in the next three months because investors will cut holdings of higher-yielding assets as housing markets and economic growth slow further, according to UBS AG.

The forecast from UBS, the second-biggest foreign-exchange trader, would see the yen gain almost 5 percent from today's levels to near a 12-year high of 95.76 reached in March. Barclays Capital, Citigroup Inc. and Lehman Brothers Holdings Inc. this month maintained their estimates for the yen to strengthen through the third quarter, with Lehman the most bullish.

Japan's currency held gains today after Federal Reserve Chairman Ben S. Bernanke said rising mortgage foreclosures may push home prices down, hurting the broader economy. U.K. house prices posted their first decline since 1996 in April compared with a year earlier, HBOS Plc, the country's biggest mortgage lender, said on May 2.

``We maintain our outlook for a generally firm yen,'' Ashley Davies, a currency strategist in Singapore at UBS, said in an interview confirming a research report dated today. ``We've still got ongoing macroeconomic risks as indebted households will scale back. Slowing global growth will raise a lot of questions.''

The yen traded at 104.87 per dollar at 11:42 a.m. in London from 104.85 late yesterday in New York. Japan's currency rose to a 12-year high on March 17 as the Fed's bailout of Bear Stearns Cos. prompted a reduction in so-called carry trade purchases of higher-yielding assets funded with yen loans.

Bank's Yen Forecasts

Barclays' prediction of a yen rate of 105 to the dollar by the end of the third quarter, Citigroup's 100 and Lehman's 94 were unchanged from those made in April. Deutsche Bank, the world's largest trader of foreign exchange, is looking for 98, according to its last estimate made in April.

Fed policy makers have lowered interest rates seven times since September as the worst real-estate slump in a quarter century threatens to push the world's biggest economy into a recession. The Bank of England, which has cut its benchmark rate three times since December, will leave borrowing costs unchanged at 5 percent on May 8, according to a Bloomberg News survey of economists.

The world's biggest banks and securities firms have racked up about $319 billion in writedowns and losses due to the collapse of the U.S. subprime mortgage market.

Yen Revival

In a 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. The risk is that currency market moves erase those profits.

The yen is likely to resume its advance against the dollar as equity prices will fall again, damping demand for yen carry trades, according to Ashraf Laidi, chief currency analyst at CMC Markets in New York.

``We always have to look at equities and risk appetite,'' Laidi said in an interview with Bloomberg Television. ``It's going to be hard for the dollar-yen to break above 106, thinking that we're going to see renewed declines in the stock markets. The dollar-yen is going to re-visit 102 before the end of this month.''

Central bank benchmark rates are 2 percent in the U.S., 7.25 percent in Australia, 8.25 percent in New Zealand and 0.5 percent in Japan. The Fed lowered rates by a quarter percentage point on April 30 as it strives to get banks to lend. Bank of England policy maker David Blanchflower said April 29 house prices may fall 33 percent in the next three years.

Worst Not Over

The dollar's rally may be premature, said Callum Henderson, head of currency strategy in Standard Chartered Plc. in Singapore.

``We have been calling for a dollar rally in the second half but we just don't think this is it,'' he said in an interview today. ``The worst may be over in terms of the financial markets and in terms of the credit crisis but the worst is certainly not over for the real economy.''

The bank has revised up its forecast for the dollar to trade at 98 yen by the end of the second quarter from its earlier projection of 91 because of the credit-market recovery. The bank forecasts the dollar will trade at 104 by the end of the year from 98 previously.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net

Last Updated: May 6, 2008 06:49 EDT