Yen Falls as Democrats, White House Agree on Automaker Bailout

By Stanley White

Dec. 10 (Bloomberg) -- The yen fell against the euro and the dollar on speculation government efforts to cushion a global economic slump will encourage Japanese investors to seek out overseas assets with higher yields.

The yen also declined versus the Australian and New Zealand dollars after Congressional Democrats and U.S. President George W. Bush’s administration agreed on the outlines of a $15 billion plan to give General Motors Corp. and Chrysler LLC federal loans. The agreement sparked demand for Asian shares, helping South Korea’s won achieve its biggest gain in six weeks.

“The yen is weakening on sentiment for equities,” said Sean Callow, senior currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest bank. “It’s clear the equity market wanted this bailout deal to be done, and currencies are following that.”

Japan’s currency fell to 120.20 per euro as of 7:43 a.m. in London from 119.07 late yesterday in New York. Against the dollar, it declined to 92.64 from 92.13. It rose to 91.60 on Dec. 5, the highest since Oct. 24. The euro gained to $1.2976 from $1.2927.

Against the Australian dollar, the yen fell to 61.06 from 60.69 late yesterday in New York. It also declined to 50.59 per New Zealand dollar from 49.99. Japan’s 0.3 percent target interest rate is the lowest among developed nations and compares with 4.25 percent in Australia and 5 percent in New Zealand.

Currency Intervention

The yen extended declines after Bank of Japan Governor Masaaki Shirakawa told lawmakers today the country’s Finance Ministry has the option of intervening to stem abrupt currency moves. The central bank is also closely watching the yen’s impact on the economy and taking that into account when deciding monetary policy, he said.

Central banks intervene by arranging the purchase and sale of currencies.

The MSCI Asia-Pacific index of regional shares rose 3.1 percent as South Korea’s Hynix Semiconductor Inc., the world’s second-largest computer memory chipmaker, won financial support from creditors.

The Korean won jumped 3.8 percent to 1,393.95 per dollar as the Kospi stock index added 3.6 percent, a fourth day of gains.

Treasury 10-year notes fell, snapping a rally that pushed three-month bill rates below zero, and Japanese notes also declined as stock gains reduced demand for debt.

U.S. lawmakers and the White House agreed to auto legislation “in concept,” a senior administration official said yesterday. The bill would include protection for taxpayers’ money, including the appointment of a so-called car czar who could force the companies into bankruptcy if they don’t come up with their own restructuring plans by March 31, the official told reporters on condition of anonymity.

Weak Bias

“The yen’s bias is to weaken,” said Tetsu Aikawa, deputy general manager of the capital markets division at Shinsei Bank Ltd. in Tokyo. “Stock markets are showing signs of stability, and that will encourage investors to take on risk.”

The yen may weaken to 93 per dollar and 120.50 against the euro today, Aikawa said.

Japanese investors bought 240.1 billion yen ($2.6 billion) more in overseas bonds, stocks and short-term securities than they sold in the week ended Nov. 29, the fifth consecutive week of net purchases, Finance Ministry data show.

The yen has gained this year against all 178 currencies tracked by Bloomberg on speculation the global economic slump and interest-rate cuts will prompt investors to unwind carry trades.

Buying Potential

Japan’s currency appreciated 21 percent versus the dollar, 35 percent against the euro and 69 percent versus New Zealand’s dollar this year. It’s headed for the first annual gain versus Brazil’s real, the euro and the New Zealand dollar in at least six years.

“Deleveraging is not fully done in the financial industry,” said Benedikt Germanier, a currency strategist in Stamford, Connecticut, at UBS AG, who predicted the yen may appreciate to 90 per dollar in a month. “The yen still has buying potential.”

Implied volatility on one-month dollar-yen options was at 19.32 percent, up from 11.45 percent at the end of last year, indicating investors expect more currency fluctuations. Volatility jumped to 41.79 percent on Oct. 24, the highest level since Bloomberg started compiling the data in 1995.

The stronger yen has eroded Japanese exporters’ revenue. Sony Corp., the world’s second-biggest consumer-electronics maker, said yesterday it plans to eliminate 16,000 jobs. It said on Oct. 23 that net income will probably drop 59 percent in the year ending March 31.

The dollar has gained 34 percent versus the pound this year and 12 percent against the euro as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to repatriate overseas investment to the U.S. and seek shelter in Treasuries.

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, was little changed at 85.791 today. It touched 88.463 on Nov. 21, the highest since April 2006.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net