June 26 (Bloomberg) -- The yen rebounded from near a record low against the euro after Japan's Finance Minister Koji Omi stressed that investors should realize the risk of one-way bets against the currency.

Japan's yen rose against all of the 16 most-active currencies after Omi told reporters today in Tokyo that ``disorderly moves of foreign exchange rates are undesirable.'' The remarks were aimed at discouraging investors who borrow yen to buy higher-yielding assets in so-called carry trades.

``The yen looks strong,'' said Kenichiro Fujita, manager of Aozora Bank Ltd.'s derivatives marketing group in Tokyo. ``Omi's comments elevated the sense of vigilance against carry trades.''

The yen climbed to 123.43 per dollar at 7:05 a.m. in London from 123.67 late in New York yesterday, after reaching a 4 1/2- year low of 124.13 on June 22. It will rise to 122.80 per dollar today, Fukita said. Japan's currency traded at 166.19 per euro from 166.49 yesterday and a record low 166.94 on June 22.

Hiroshi Watanabe, Japan's top currency official, will step down as vice finance minister for international affairs, a Finance Ministry official said today on condition of anonymity.

``Watanabe has been regarded as a pro weak-yen official,'' said Yuji Saito, head of the foreign-exchange sales department at Societe Generale SA in Tokyo. The yen may rise to 123 per dollar today, he said.

`Weak-Yen Official'

The yen has weakened 13 percent against the dollar and 21 percent versus the euro since Watanabe was appointed on June 2 2004. Unlike his predecessors, Watanabe never stepped into the currency market to sell or buy yen during his tenure.

Today's remarks from Omi, who has the power to order the Bank of Japan to intervene in the foreign-exchange market, show increased concern carry trades are getting excessive. Omi had previously only said he's ``watching the currency market carefully.''

The Basel-based Bank for International Settlements warned investors about their ``too firm conviction'' on carry trades in an annual report published June 24.

Japan hasn't intervened since March 2004. The central bank sold 14.8 trillion yen ($119.8 billion) from January through March that year, following record sales of 20.4 trillion yen in 2003, to curb yen strength.

The Reserve Bank of New Zealand June 11 announced currency sales for the first time since 1988, saying gains were ``unjustified.'' The RBNZ probably intervened twice more since then, according to New Zealand banks.

Japanese Worker Bonuses

Gains in the yen may be limited by speculation Japanese workers being paid bonuses this month will invest abroad.

Employees at private companies are expected to receive summer bonuses totaling 15.6 trillion yen, up 3.1 percent from a year earlier, according to Mitsubishi UFJ Research and Consulting Co., Ltd. Finance companies will market more than 1 trillion yen of foreign-currency investment trusts before the end of June, according to data compiled by Bloomberg.

``Japanese investors are sending money abroad, seeking high- yielders,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender by assets. ``Selling the yen still gives investors a sense of reassurance.''

The currency may fall to 123.90 per dollar and 167 a euro today, Kato said.

The yen also rose on speculation investors will exit carry trades after the Standard & Poor's 500 Index dropped yesterday on concern losses tied to mortgage defaults will deepen.

Asian Stock Markets

Bear Stearns Cos. led the drop after a Merrill Lynch & Co. analyst said the second-biggest U.S. underwriter of mortgage bonds may have to salvage another hedge fund. The S&P 500 Index lost 1.6 percent over the past two days.

``Concern over falling Asian stock markets is strong,'' said Toru Umemoto, chief currency analyst at Barclays Capital in Tokyo. ``Investors will likely buy the yen while the market focuses on the issue of risk reduction.''

The yen may move between 122 and 125 per dollar in one month, Umemoto said. Japan's Nikkei Stock Average declined 0.1 percent and the Morgan Stanley Capital International Asia-Pacific index of leading regional shares fell for a third day, by 0.1 percent.

Japan's 0.5 percent cost of borrowing compares with 5.25 percent in the U.S. and 4 percent in the European Union. That helped the currency decline 4.5 percent against the dollar and 5.3 percent versus the euro this quarter.

U.S. Housing

Against the yen, the Australian and New Zealand dollars have risen 3.8 percent and 5.6 percent this month, respectively, as investors funneled money into securities in those two nations in search of higher returns. Australia's dollar traded at 104.57 yen from 104.71 and New Zealand's dollar was at 94.62 yen from 94.61.

``Carry trades are going to have trouble performing as well as they have done,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``The yen is going to strengthen a little bit.''

The dollar traded near a three-week low against the euro before a U.S. report today that may show purchases of new homes fell the most in four months in May, reviving concerns over a slowing economy.

``Worries over housing and subprime mortgages may act as a drag on the economy,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The dollar is likely to weaken.''

The dollar may fall to $1.3490 per euro and 123.30 yen today, Soma said, as sales of new U.S. homes fell 6 percent to an annual pace of 922,000 last month from 981,000 the prior month, according to a Bloomberg News survey. The Commerce Department will release the data at 10 a.m. in Washington.

To contact the reporter on this story: Kosuke Goto in Tokyo at at kgoto2@bloomberg.net; Ron Harui in Singapore at at rharui@bloomberg.net

Last Updated: June 26, 2007 02:12 EDT