* Yen falls broadly, EUR/JPY hits 10-month high
* Market focus on rate differentials
* Asset managers go tentatively long carry trades (Recasts, updates prices, adds detail, comment)
NEW YORK, March 30 (Reuters) - The yen weakened across the board on Wednesday, sliding to a 10-month low against the euro, as recent hawkish comments from euro zone and U.S. officials contrasted with Japan's loose monetary policy.
The euro rose to around 117.28 yen
Rising risk appetite encouraged investors to seek higher-yielding assets, with the Australian dollar climbing to a 29-year high over its U.S. counterpart
"The new high in the Australian dollar, combined with weakness in yen, suggest that the carry trade is building momentum," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "This could put significant weakening pressure on yen, but we would not be surprised to see some dollar/yen downside (yen strength) on the back of ongoing repatriation in late in April."
The U.S. dollar rose to around 83.19 yen
Traders reported offers at 83.30/50, with orders said to be thin until more supply placed at around 84.00.
Hawkish comments in recent days from U.S. Federal Reserve and European Central Bank officials contrasted with the stance taken by the Bank of Japan, which is set to leave interest rates near zero for some time to support the world's third-largest economy as it recovers from the effects of the earthquake.
Dallas Fed President Richard Fisher said on Tuesday he would vote against further monetary easing after the Federal Reserve's $600 billion bond-buying program ends in June. [ID:nN2984973]
That pushed up short-dated U.S. Treasury yields, widening their differential with Japanese yields as investors took the comments as an indication of eventual monetary tightening.
Those yield differentials are key to the revival of the "carry trade," in which investors borrow in low-yielding, low-risk currencies such as the yen and buy riskier assets elsewhere. The yen has also become a prime funding vehicle because of large injections of cash by the Bank of Japan into the Japanese economy after the recent earthquake and tsunami.
"You can see the euro/yen relationship indicating that yen carry trade is being put back into play," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
The euro
The euro is more than 5.0 percent higher against the dollar this year, and its apparent resilience to fiscal problems facing weak euro zone countries has led some to nickname it the "Teflon euro."
"I would be confident in the euro at these levels," said Pierre Lequeux, head of currency management at Aviva Investors. "I like the euro, basically, and I see some upside."
AUSSIE SHINES
Speculation that Japanese investors may reduce dollar hedging positions related to their overseas investments, and the absence of huge repatriation flows following the quake, are shifting the focus back to economic fundamentals and reinforcing the yen's status as a funding currency.
"We're seeing asset managers and hedge funds starting to dip their toes back into carry trades, but it's quite tentative at this stage," said Geoffrey Yu, currency strategist at UBS, in an interview with Reuters Insider. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ http://link.reuters.com/gen78r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The market's focus on rate differentials benefited higher-yielding currencies such as the Australian dollar
The Aussie traded at 85.61 yen after earlier climbing to a 10-month high.