By Ron Harui and Stanley White
Nov. 19 (Bloomberg) -- The yen rose against the dollar as speculation U.S. lawmakers will fail to agree a bailout for automakers damped demand for carry trades, in which investors buy higher-yielding assets with funds borrowed in Japan.
The currency also gained against the Australian dollar and the British pound as a deepening global economic slump spurred Asian stock losses. A $700 billion U.S. financial stability package isn't intended to prevent General Motors Corp., Ford Motor Co. and Chrysler LLC from collapsing, Treasury Secretary Henry Paulson said in a House hearing yesterday.
``It seems unlikely that the U.S. will pass legislation this year to help its carmakers,'' said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank, Japan's fifth-largest publicly traded lender by assets. ``Once this filters through the markets, this will push up the yen.''
The yen climbed to 96.60 against the dollar as of 3:28 p.m. in Tokyo from 97.03 late yesterday in New York. It rose to 121.99 per euro from 122.43. The euro bought $1.2629 from $1.2618. The pound was at $1.4952. The yen may rise to 96.20 versus the dollar today, Yoshida said.
The Australian dollar fell 1.6 percent to 62.26 yen from late yesterday in New York, while the New Zealand dollar declined 1 percent to 53.07 yen. The South African rand slid 0.7 percent to 9.4107 yen.
The yen is popular in carry trades because of Japan's low interest rates. The nation's benchmark rate of 0.3 percent compares with 3.25 percent in Europe, 5.25 percent in Australia, 6.5 percent in New Zealand and 12 percent in South Africa. The risk with carry trades is that currency moves erode profits.
The Nikkei 225 Stock Average slid 0.7 percent and the MSCI Asia-Pacific Index of regional shares declined 0.6 percent.
U.S., Japanese Automakers
The yen has advanced 14 percent versus the dollar, 32 percent against the euro and 54 percent against the Australian dollar in the past three months as the global economy headed toward a recession. Nissan Motor Co., Japan's third-largest automaker, said profit in the second-half will go to ``zero'' because of lower sales in the U.S. and a stronger yen.
The U.S. should reduce its trade and budget deficits to support the dollar as it is the world's reserve currency, Japan's Vice Finance Minister for international affairs Naoyuki Shinohara said today in a speech in Sydney.
`Catastrophic Collapse'
The U.S. economy would suffer a ``catastrophic collapse'' if domestic carmakers fail, GM Chief Executive Rick Wagoner said yesterday, as the nation's auto industry renewed appeals to Congress for federal aid.
Three million jobs would be lost within the first year, personal income would drop by $150 billion and government tax losses would total $156 billion over three years, Wagoner told a Senate panel.
The dollar may extend declines before government reports today that economists say will show the housing recession at the heart of the U.S. economic downturn is deepening, bolstering the case for the Federal Reserve to cut interest rates.
The ICE's Dollar Index, a gauge of the greenback against the currencies of six major trading partners, snapped two days of gains as futures traders raised bets the Fed will lower borrowing costs in coming months. A U.S. report yesterday showed confidence among homebuilders dropped in November to the lowest level since record-keeping began in 1985.
`Deteriorating Further'
``The reports are likely to indicate the U.S. economy is deteriorating further,'' said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France's second- largest bank by market value. ``The Fed may cut rates more. It's negative for the dollar.''
The dollar may weaken to 96 yen today, Saito said. The ICE's Dollar Index declined 0.3 percent to 87.122.
Housing starts in the U.S. fell to a 780,000 annual pace in October, the lowest since records began in 1959, according to a Bloomberg News survey of economists. Building permits dropped to a 774,000 pace last month, the lowest since November 1981, a separate Bloomberg survey shows. The Commerce Department releases both reports at 8:30 a.m. in Washington.
Futures on the Chicago Board of Trade show a 9 percent chance the Fed will reduce its 1 percent target rate for overnight bank loans to 0.25 percent by its Jan. 28 meeting, up from zero odds a day earlier.
The dollar may also decline as economists say data today will show U.S. consumer prices fell 0.8 percent in October, the most since 1949, after being unchanged the previous month. The Fed will also today release minutes of its Oct. 29 meeting where policy makers cut rates by half a percentage point.
``The dollar may face some selling pressure,'' said Masahiro Sato, joint general manager in Tokyo of the treasury division at Mizuho Trust & Banking Co., a unit of Japan's second-largest publicly listed lender. ``Traders will look for any signs of crisis at the Fed or anything that suggests rates will fall further.''
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
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