BLBG: Yen Falls as Stock Gains Encourage Purchases of High-Yielders
By Stanley White
Dec. 8 (Bloomberg) -- The yen fell against the euro as Asian stocks rallied, giving investors confidence to increase holdings of higher-yielding assets funded in Japan’s currency.
The yen also slid against the Australian dollar, a favorite of carry trades, after shares rose for a second day 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 U.S. President-elect Barack Obama’s economic stimulus plans reduced pressure on finance companies to hoard the U.S. currency amid the credit crisis.
“The stock market is pulling the yen lower,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest publicly traded lender. “Short-term loans to U.S. carmakers may provide a temporary solution to their woes.”
The yen fell to 118.60 per euro as of 2:19 p.m. in Tokyo from 118.18 in New York on Dec. 5. It declined to 60.49 per Australian dollar from 60.02. The euro rose to $1.2764 from $1.2718. The yen was little changed at 92.79 versus the dollar.
The yen may decline to 93.50 per dollar today, Ito said.
South Korea’s won rose 1.6 percent to 1,452.60 per dollar, the biggest gain in a week, on speculation overseas investors will increase purchases of the nation’s shares after the Kospi stock index rallied.
Stock Markets
The MSCI Asia-Pacific index of regional shares rose 4.4 percent, its biggest gain in a month, after the Standard & Poor’s 500 Index gained 3.7 percent on Dec. 5.
In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.3 percent target lending rate compares with 2.5 percent in Europe, 4.25 percent in Australia and 5 percent in New Zealand.
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 had 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 a half-century ago. The U.S. President-elect takes office on Jan. 20.
ZEW Survey
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.
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.”
Eastern Europe
The slowing 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 say.
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.
GM, Chrysler
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.
“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 U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
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 42,903 on Dec. 2, compared with net longs of 37,166 a week earlier.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.
