BLBG: Yen Falls as Carmaker Loans Revive Confidence in Carry Trades
By Ron Harui and Stanley White
Dec. 22 (Bloomberg) -- The yen fell against the euro, extending this month’s decline, as U.S. government aid to General Motors Corp. and Chrysler LLC gave investors confidence to boost holdings of higher-yielding assets funded in Japan.
The Japanese currency also dropped versus the dollar on speculation Bank of Japan Governor Masaaki Shirakawa will express concern over the yen’s gains following a record plunge in exports 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 fell.
“GM and Chrysler have won a reprieve for the remainder of this year,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This is pushing the yen a little bit lower.”
The yen dropped 1.3 percent to 125.78 per euro at 1:53 p.m. in Tokyo from 124.22 on Dec. 19, paring its gain this year to 30 percent. The currency declined to 89.99 against the dollar from 89.31 late last week. It reached 90.23, the lowest level since Dec. 16. The dollar weakened to $1.3972 per euro from $1.3912. It slid to an 11-week low of $1.4719 on Dec. 18.
Against the yen, Singapore’s dollar climbed 1.2 percent to 62.05 and Taiwan’s dollar advanced 0.6 percent to 2.762 from late in New York on Dec. 19. Japan’s Nikkei 225 Stock Average gained 1.2 percent on optimism the $13.4 billion in emergency government loans to GM and Chrysler will limit the fallout of a global recession.
Interest Rates
Investors added to so-called carry trades, in which they get funds in a country with low borrowing costs and buy assets in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits. Japan’s benchmark interest rate is 0.1 percent, compared with 2.5 percent in the 15-nation euro region, 4.25 percent in Australia and 5 percent in New Zealand.
The yen has appreciated 24 percent against the dollar this year, the most since 1987, 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.
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. Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said today he was concerned about the downside risks for the economy.
Honda Motor Co., Japan’s second-biggest automaker, said last week that it may shift manufacturing overseas if the currency strengthens further.
U.S. Economic Reports
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.
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 has gained 4.4 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.
The yen declined against all 16 of the most-active currencies before BOJ Governor Shirakawa speaks to Keidanren, Japan’s largest business lobby, at 1:55 p.m. in Tokyo today.
‘Temporary Halt’
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.
The last time Japan intervened 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.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
