The yen edged up from a 4-1/2-year low against the dollar and all-time trough versus the euro, but stayed pressured as investors kept selling the low-yielding currency in carry trades.

The New Zealand dollar recovered all of its losses suffered on suspected central bank intervention in the late US session on Friday, and hit a 22-year high against the dollar and rose near a 20-year peak against the yen.

Investors kept risky positions like the carry trades in which low-yielding currencies such as the yen are borrowed to fund investment in higher-yielding currencies, brushing aside a 0.5 per cent dip in Tokyo's Nikkei share average which followed a sharp drop on Wall Street.

'There aren't many people who want to buy yen especially when a lot of investment trusts drawing in households' summer bonuses are scheduled to go on sale this week, and this is expected to pressure the yen,' said a senior trader at Japanese bank.

The yen was becoming one of the easiest funding currencies for carry trades while other central banks outpace the Bank of Japan in raising their interest rates, so widening the rate gap, traders said.

 The BOJ is expected to raise rates to a 12-year high of 0.75 per cent from 0.50 per cent, most likely in August.

'Traders feel safe to sell the yen because a weakening yen is supportive for Japan's economy and there are no strong attempts by policy makers here to stop the falling yen,' said Kengo Suzuki, currency strategist for Shinko Securities.

The dollar was slightly down from late US trading at 123.85 yen, but in sight of 124.14 hit on Friday, the highest level since December 2002.

The euro edged down at 166.75, after striking an all-time high of 166.94 the previous session, while it was little changed against the dollar from late New York at $1.3465.

The high-yielding sterling rose to $2.000, edging close to 26-year highs set in April and rose near a 15-year peak against the yen of 247.88 yen hit on Friday.

The Swiss franc extended its broad gains the previous session and hit a 16-year high against the yen at 100.86 yen.

The Swiss franc, another favoured funding currency for carry trades, surged on Friday after monetary authorities let one-week repo rates rise, just a week after lifting the benchmark lending rate to 2.5 per cent, sparking some concern that the Swiss central bank may be trying to disrupt carry trades.
   
The New Zealand dollar rose 0.2 per cent against the dollar to hit $0.7687, a 22-year high since it was floated in 1985, and rose the same percentage against the yen to 95.05 yen, close to a 20-year high at 95.21 yen hit on Friday.

The kiwi reclaimed its losses as traders covered their short kiwi positions on no sign of intervention earlier in the session as well as on demand from Japanese investors.

Traders said the New Zealand dollar briefly fell in late US trading on Friday after the Reserve Bank of New Zealand was rumoured to have sold the currency for US dollars.

A RBNZ spokeswoman declined to comment on whether it had stepped in on Friday. Reuters