Yen Trades Near Two-Week High on Ireland Downgrade, GM Concern

By Theresa Barraclough and Oliver Biggadike

March 31 (Bloomberg) -- The yen traded near a two-week high against the euro after Standard & Poor’s cut Ireland’s AAA credit rating, the fourth downgrade of a euro-region government this year.

Japan’s currency and the dollar may advance against the euro for a third day after a U.S. government official said bankruptcy may be the best option for General Motors Corp., causing the biggest slump in stocks in three weeks. The euro also weakened versus 10 of the 16 major currencies after the World Bank forecast Russia’s economy will probably shrink 4.5 percent this year.

“The yen appreciation is likely to continue for a while as market participants are thinking that the yen is a safe haven again,” said Toru Umemoto, Tokyo-based chief currency strategist at Barclays Capital. “Chapter 11 will probably apply to GM, Ireland was downgraded and equity prices are lower, so risk appetite is decreasing.”

The yen traded at 128.43 per euro at 8:08 a.m. in Tokyo, after gaining 1.3 percent yesterday and touching 126.42, the strongest level since March 16. Its two-day gain of 4.1 percent was the biggest since Jan. 12. Japan’s currency was at 97.39 versus the dollar following a 0.6 percent increase. The dollar traded at $1.3186 per euro after rising 0.7 percent.

The dollar was headed for a 5.6 percent gain against the euro in the first three months of the year, its fourth consecutive quarterly increase and the most prolonged advance since December 2005. The yen lost 1.4 percent versus the euro, the first quarterly loss since June. The greenback rose 7.5 percent this quarter against the yen, the second-best performance among major currencies tracked by Bloomberg.

Stock Slump

The dollar strengthened this quarter as some investors took refuge in the greenback as the world’s reserve currency. Others sought shelter in the yen as Japan’s trade surplus makes the currency attractive to investors in times of turmoil, as it means the country doesn’t rely on overseas lenders.

The MSCI World Index fell 3.9 percent, the largest decline since March 2 after President Barack Obama said at the White House the carmakers must survive without becoming “wards of the state” and they have one last, limited chance to “fundamentally restructure.”

Europe’s single currency fell as S&P cut Ireland’s rating after slashing its rating on Hungary’s foreign debt. Hungary’s forint yesterday declined to as low as 313.25 per euro, the weakest level in three weeks.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net.