Yen Rises as U.S. Automaker Bailout Lacks Republican Support

By Stanley White

Dec. 11 (Bloomberg) -- The yen rose against the euro 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 also gained versus the dollar 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. South Korea’s won climbed for a fifth day against the greenback after the central bank cut interest rates to a record low to prevent the economy from slipping into a recession.

“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 gained to 120.46 per euro as of 10:28 a.m. in Tokyo from 120.78 late yesterday in New York. Against the dollar, the yen traded at 92.50 from 92.76. The euro was little changed at $1.3021. The yen may rise to 91 against the dollar today, Tokyo- based Matsumoto said.

The South Korean won rose 2.2 percent to 1,363.50 per dollar, after touching 1.345.50, the strongest level in three weeks. The Bank of Korea lowered its benchmark rate a larger- than-expected 1 percentage point to 3 percent.

Currency Swaps

Japan will expand its currency-swap agreement with South Korea to help its neighbor obtain foreign currency, Japanese Vice Finance Minister for international affairs Naoyuki Shinohara told reporters in Tokyo today. Policy makers are still discussing the amount of the swap increase, Japan’s top currency official said. The won is down 31 percent against the dollar this year, making it Asia’s worst performer.

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 21 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.

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 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, was little changed at 85.405. It touched 88.463 on Nov. 21, the highest since April 2006.

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.

“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.

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

Last Updated: December 10, 2008 20:44 EST