Yen Rises on Speculation U.S. Will Fail to Agree on Car Bailout

By Ron Harui and Stanley White

Nov. 19 (Bloomberg) -- The yen rose against the dollar on speculation U.S. lawmakers will fail to agree on a bailout for the country's automakers, prompting investors to pare higher- yielding assets funded with Japan's currency.

The yen also gained against the Australian dollar and the British pound on concern the credit crisis may spread. A $700 billion 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 96.65 against the dollar at 9:35 a.m. in Tokyo from 97.03 late yesterday in New York. It rose to 122.15 per euro from 122.43. The euro bought $1.2633 from $1.2618. The pound was little changed at $1.4962. The yen may rise to 96.20 versus the dollar today, Yoshida said.

The Australian dollar fell 0.9 percent to 62.72 yen from late yesterday in New York, while the New Zealand dollar declined 0.5 percent to 53.33 yen. The South African rand also slid 0.4 percent to 9.4410 yen.

The yen is popular in carry trades, where purchases of higher-yielding assets are funded in nations with lower rates. Japan's benchmark rate of 0.3 percent compares with 1 percent in the U.S., 3.25 percent in Europe, 5.25 percent in Australia, 6.5 percent in New Zealand and 12 percent in South Africa.

U.S., Japanese Automakers

Japan's currency has advanced 13 percent versus the dollar, 33 percent against the euro and 52 percent against the Australian dollar in the past three months on slumping global economies. 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.

Chief Executive Officer Carlos Ghosn made the comments in an interview with the Wall Street Journal, which were confirmed by Nissan spokesman Simon Sproule.

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 fall before government reports today that economists estimate 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.

`Deteriorating Further'

The ICE's Dollar Index, a gauge of the greenback against the currencies of six major trading partners, may snap two days of gains as futures traders raised bets that 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.

``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 96.50 yen today, Saito said. The ICE's Dollar Index hasn't yet traded. It closed at 87.372 late in New York yesterday, from 86.807 on Nov. 17.

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 in October, 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 percent odds a day earlier.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net