Yen Falls as Haven Allure Fades on Stock Gains After Obama Plan

By Bo Nielsen and Stanley White

Dec. 8 (Bloomberg) -- The yen fell against the euro as stocks rallied around the world after U.S. President-elect Barack Obama’s unveiled the biggest economic stimulus plan since the 1950s, cutting the appetite for Japan’s currency as a haven.

The yen also slid against the Australian dollar as U.S. lawmakers neared agreement on bridge loans for General Motors Corp. and Chrysler LLC to help the automakers survive this month. The dollar fell against the euro as Obama’s plans lowered pressure on finance companies to hoard the U.S. currency amid the credit crisis.

“Anything that brings down risk aversion and causes stock markets to rally is bad for the yen,” said Ulrich Leuchtmann, head of foreign-exchange research in Frankfurt at Commerzbank AG, Germany’s second-biggest bank. “Obama and his team will run a very proactive type of recession-fighting, causing the fear of a global slowdown to abate. The yen has mostly profited from the high level of global risk aversion.”

The yen fell to 120.14 per euro as of 8:21 a.m. in London from 118.18 in New York on Dec. 5. It weakened to 93.75 against the dollar from 93.03. The Japanese currency slid to 61.39 per Australian dollar from 60.02. The euro rose to $1.2836 from $1.2718.

The MSCI World Index added 3 percent, Standard & Poor’s 500 Index futures jumped 2.7 percent and Europe’s Dow Jones Stoxx 600 Index advanced 6 percent. The MSCI Asia-Pacific index rose 4.4 percent, its biggest gain in a month.

Obama’s Plans

The U.S. House and Senate will meet this week to debate extending $15 billion in loans to GM and Chrysler as a global recession crimps consumer spending, making it difficult for the automakers to pay their bills. U.S. car companies originally requested $34 billion.

Obama, in a television interview yesterday on NBC, reiterated his commitment to the biggest investments in the nation’s infrastructure since President Dwight D. Eisenhower created the interstate highway system half a century ago. The U.S. President-elect takes office on Jan. 20.

The yen’s losses may be limited by speculation a U.S. rescue of GM and Chrysler may not prevent the two firms from filing for bankruptcy protection or being acquired.

GM’s Chief Executive Richard Wagoner should be replaced as a condition for federal aid and Chrysler may have to merge to survive, Senate Banking Committee Chairman Chris Dodd said on CBS television yesterday. GM is willing to accept strict conditions for a U.S. loan to stay afloat, including a promise to return the money and file for bankruptcy if the company doesn’t fulfill the terms, Wagoner said Dec. 5.

‘No Guarantee’

“The bias is for the yen to appreciate,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “There’s no guarantee that this bailout will come together and prevent these companies from going under. That discourages any sort of risk trade and boosts the yen.”

The yen may advance to 92.50 per dollar and 117.60 against the euro today, he said.

Futures traders increased bets the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.

Gains in the euro may be limited by speculation worsening investor confidence in Germany, Europe’s largest economy, will give the European Central Bank more room to cut interest rates.

ZEW Survey

The ZEW Center for European Economic Research’s index of German investor and analyst expectations fell to minus 57 in December from minus 53.5 the previous month, according to a Bloomberg News survey. The research center will release the data tomorrow in Mannheim.

The ECB lowered its benchmark rate to 2.50 percent from 3.25 percent on Dec. 4 after data last month showed Europe’s inflation rate fell by the most in almost two decades.

“Inflation expectations have fallen faster than the ECB is cutting rates,” analysts led by Hans-Guenter Redeker, London- based global head of currency strategy at BNP Paribas SA, France’s biggest bank, wrote in a research note on Dec. 5. “European fiscal and monetary authorities’ slow response to the credit crunch will keep the euro under pressure.”

The cooling global economy is halting the spread of monetary union into eastern Europe and may lead to another year of losses for the Polish zloty, Hungarian forint and Czech koruna, New York-based Morgan Stanley and UBS AG in Zurich said.

‘Mirage’

The zloty fell 21 percent against the euro since July as Poland headed for its biggest economic slowdown in almost a decade, while Hungary turned to the World Bank, International Monetary Fund and European Union for a bailout as the forint weakened 16 percent. Koruna volatility almost tripled as it fell 13 percent. The two-year mandatory trial period before adopting the euro allows swings of no more than 15 percent.

Hungary’s plans to enter the pre-euro stability test by 2010 are a “mirage,” said Istvan Hamecz, chief executive officer of OTP Fund Management, Hungary’s largest fund management company, with $6.4 billion of assets. “Nobody needs us in that club.”

Less than three months after announcing a target of 2012, Polish Finance Minister Jacek Rostowski said the date isn’t “dogma.” The main opposition party says rushing into the currency will hurt growth and trigger inflation.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net