Yen May Rise as U.S. Automaker Bailout Lacks Republican Support

By Stanley White

Dec. 11 (Bloomberg) -- The yen may gain against the dollar on speculation a lack of Republican support for a bailout of U.S. automakers will prompt investors to pare holdings of assets funded with Japan’s currency.

The yen may also rise versus the euro after Republican Senator George Voinovich said yesterday legislation to provide $15 billion in federal loans to General Motors Corp. and Chrysler LLC may not have enough votes from his party to pass the Senate. The Australian dollar may decline before a report that economists say will show the country’s jobless rate climbed to the highest in a year as the threat of a global recession damped trade.

“No one is sure how the automaker rescue package will turn out, and that’s making some people nervous,” said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. “The global economy clearly has problems. This will pressure the dollar to go lower against the yen.”

The yen was little changed at 92.83 per dollar as of 8:40 a.m. in Tokyo from late yesterday in New York. It rose to 91.60 on Dec. 5, the highest level since Oct. 24. Against the euro, the yen was quoted at 120.82 from 120.78. The euro bought $1.3011 from $1.3023. The yen may rise to 91 against the dollar today, Tokyo-based Matsumoto said.

State Street Global Markets recommended investors erase bets that the dollar will gain versus the euro as major central banks’ interest rates are “nearing the bottom.” Policy makers in Canada, Europe, the U.K., Sweden, Australia and New Zealand lowered interest rates this month.

‘Soon Fade’

“Narrowing interest-rate differentials will soon fade as a force in the foreign-exchange market,” Dwyfor Evans, a Hong Kong-based currency analyst at the company, wrote in a research note to clients yesterday.

The dollar may extend its decline as the U.S. government increases its budget deficit by spending “trillions of dollars” to revive the economy, according to Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.

“There’s some risk” for the dollar to weaken, said Gross in an interview on Bloomberg Television yesterday. “It is fair to say other economies are doing much the same thing. The dollar doesn’t have to go south if all the economies reflate at the same time.”

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, fell 0.4 percent to 85.484 yesterday. It touched 88.463 on Nov. 21, the highest since April 2006.

Automaker Bailout

The Bush administration is lobbying Republican lawmakers to support a plan to rescue General Motors and Chrysler, officials said. Legislation in the House of Representatives calls for the appointment of a car czar who may force the automakers into Chapter 11 bankruptcy if the companies don’t come up with a restructuring plan by March 31.

The yen gained this year against all 178 currencies tracked by Bloomberg as the global recession encouraged Japanese investors to repatriate funds. The yen appreciated 20 percent versus the dollar, 35 percent against the euro and 66 percent against Brazil’s real as so-called carry trades unwound.

The dollar gained 12 percent against the euro this year 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 government debt.

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