Yen Weakens as Carmaker Loans Cut Demand for Currency as Haven

By Lukanyo Mnyanda and Ron Harui

Dec. 22 (Bloomberg) -- The yen weakened against the euro and the dollar as Japanese exports tumbled and U.S. government aid to General Motors Corp. and Chrysler LLC reduced demand for the currency as a haven.

The yen dropped to the lowest level versus the dollar in almost a week after Bank of Japan Governor Masaaki Shirakawa said the nation’s exports may decline further because of the yen’s strength and the global slowdown. Exports plunged by a record 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 declined.

“People have been encouraged to put in a bit more of the risk trades and that’s taking the top off some of the yen gains,” said Jeremy Stretch, senior market strategist in London at Rabobank International, the third-biggest Dutch lender. “They are also assessing the state of the economy and asking if the big moves we’ve seen in the yen are justified.”

The yen dropped 2.1 percent to 126.30 per euro at 9:22 a.m. in London from 124.22 on Dec. 19, paring its gain this year to 28 percent. The currency declined to 89.76 against the dollar from 89.31 late last week. It reached 90.23, the lowest level since Dec. 16.

The dollar weakened 1.1 percent to $1.4067 per euro from $1.3912 on Dec. 19. It slid to $1.4719 on Dec. 18, the weakest level since Sept. 25. The U.S. currency was little changed at $1.4913 versus the British pound from $1.4920.

Interest Rates

A recovery in global stocks may push the yen to 95 per dollar next month, Stretch said. Japan’s Nikkei 225 Stock Average advanced 1.6 percent on optimism the $13.4 billion in emergency government loans to GM and Chrysler will limit the fallout of a global recession.

Against the yen, Singapore’s dollar climbed 0.9 percent to 61.87 and New Zealand’s dollar advanced by the same amount to 51.85.

The yen appreciated 25 percent against the dollar this year, headed for its biggest annual gain since at least 1972, 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.

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.

U.S. Reports

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 tomorrow.

“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. economic data are likely to confirm just how bad the outlook is.”

The U.S. currency gained 4 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.

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.

Toyota Motor Corp., the world’s second-largest automaker, said today it expects its first operating loss in 71 years because of plunging North American and European car sales and a surging yen.

‘Temporary Halt’

The yen declined against 14 of the 16 most-active currencies as BOJ Governor Shirakawa told Keidanren, Japan’s largest business lobby, the yen’s strength is likely to spur a drop in exports and the central bank is making the utmost efforts during the current credit-market crisis.

Japan’s central bank last week cut its benchmark rate to 0.1 percent from 0.3 percent, increased purchases of government debt and announced plans to buy commercial paper for the first time to counter the recession. Japanese Finance Minister Shoichi Nakagawa last week signaled the nation is ready to intervene in the foreign-exchange market for the first time in four years.

‘The BOJ moves could put a temporary halt to the accelerating pace of yen appreciation, which has prompted increasing rhetoric from the MOF,” said Stephen Halmarick, co- head of economic and market analysis at Citigroup Inc. in Sydney. “However, this will likely prove no more than a temporary reprieve.”

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 41,381 on Dec. 16, compared with 43,259 a week earlier.

Most Volatile

The last time Japan acted on its own, it sold a record 20.4 trillion yen ($226 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar. Japan hasn’t bought yen since 1998, when it spent 3.05 trillion yen as the currency reached as low as 147.66.

The most volatile foreign-exchange markets since at least 1992 means currency traders will see the smallest pay cuts as the worst financial crisis since the Great Depression wipes out bonuses on Wall Street.

While bonuses, which account for the bulk of annual pay for traders and investment bankers, will fall an average 45 percent this year, currency traders will see declines of about 15 percent from 2007, the least of any department, according to Options Group, a New York-based consulting firm.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net