Yen Falls as Carmaker Loans Revive Confidence in Carry Trades

By Ron Harui and Stanley White

Dec. 22 (Bloomberg) -- The yen fell to the lowest level in almost a week against the dollar on speculation $13.4 billion in emergency government loans to General Motors Corp. and Chrysler LLC will give investors confidence to buy higher-yielding assets.

The currency also declined versus the euro on the prospect that Bank of Japan Governor Masaaki Shirakawa will express concern over the yen’s gains following a record plunge in exports in November. The dollar weakened against the euro before data this week that may show U.S. consumer spending, home sales and durable goods orders fell as a recession deepened.

“GM and Chrysler have won a reprieve for the remainder of this year,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This is pushing the yen a little bit lower.”

The yen declined to 89.83 against the dollar at 11:06 a.m. in Tokyo from 89.31 late in New York on Dec. 19. It reached 90.04, the lowest level since Dec. 16. The currency also dropped 1.1 percent to 125.55 per euro from 124.22, paring its gain this year to 29 percent. The dollar weakened to $1.3975 per euro from $1.3912. It slid to an 11-week low of $1.4719 on Dec. 18.

Against the greenback, the Australian dollar rose 0.3 percent to 68.30 U.S. cents and the New Zealand dollar climbed 0.6 percent to 57.78 cents from late in New York. The British pound advanced 0.2 percent to $1.4951. The MSCI Asia Pacific Index of regional stocks gained 0.8 percent on optimism the automaker bailout will limit the fallout of a global recession.

Interest Rates

Japan’s benchmark interest rate is 0.1 percent, which compares with 2.5 percent in the 15-nation euro region, 4.25 percent in Australia and 5 percent in New Zealand.

In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits.

The yen has appreciated 25 percent against the dollar this year, the most since 1987, as more than $1 trillion of credit- market losses sparked a seizure in money markets and threw the world’s largest economy into a recession.

A Japanese government report today showed exports fell 26.7 percent in November from a year earlier, the most since comparable data were made available in 1980, as the yen surged to a 13-year high against the dollar. Honda Motor Co. said last week that it may shift manufacturing overseas if the currency strengthens further.

U.S. Economic Reports

The dollar snapped two days of gains against the euro before U.S. reports that economists estimate will show the world’s largest economy is slipping further into recession.

Consumer spending fell 0.7 percent in November and orders for durable goods may show a second straight decline, according to Bloomberg News surveys of economists. The Commerce Department releases both reports on Dec. 24. Combined sales of new and existing homes approached the lowest level in at least nine years, data may show on Dec. 23.

“The bias is for the dollar to go lower,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “U.S. economy data are likely to confirm just how bad the outlook is.”

The dollar may fall to 88.80 yen today, Soma said.

The U.S. currency has gained 4.2 percent against the euro this year, 33 percent versus the British pound and 28 percent against the Australian dollar as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit.

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