Yen Gains After WSJ Says Chrysler Bankruptcy Talks Break Down from My-Zue by Admin

By Yasuhiko Seki and Ron Harui

April 30 (Bloomberg) -- The yen rose against the euro and the dollar after the Wall Street Journal reported Chrysler LLC’s talks to avoid bankruptcy have broken down, spurring demand for the safety of Japan’s currency.

The yen gained against 14 of the 16 most-active currencies on speculation Chrysler and General Motors Corp. will file for insolvency, deepening the global financial crisis. New Zealand’s dollar declined after the central bank reduced interest rates to a record low. The euro traded near a two-week high against the dollar on optimism the European Central Bank will refrain from cutting borrowing costs to zero and from buying bonds to help spur lending.

“We have a plethora of dismal news including a possible collapse of Chrysler,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan’s third- largest banking group. “This will support the yen as a refuge from the global gloom.”

The yen climbed to 97.26 per dollar as of 1:45 p.m. in Tokyo from 97.66 in New York yesterday. Japan’s currency advanced to 129.11 per euro from 129.61. The euro traded at $1.3275 per dollar from $1.3271. It climbed to $1.3340 yesterday, the highest level since April 14.

The Obama administration’s auto task force had been working to convince hedge funds and other creditors to accept terms to cut the automaker’s debt, the WSJ report said, citing people involved with the talks.

Final Shape

U.S. President Barack Obama earlier said he is “hopeful” Chrysler will be able to finish its negotiations with debt holders and become a viable and competitive automaker paired with Italy’s Fiat SpA, people familiar with the situation said.

“If Chrysler is torn up and cut to bits and pieces, the dollar may face even stronger selling,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. Still, “if the company can maintain the bulk of its operation and secure most jobs in the end, the dollar-selling may turn out to be a blip.”

The yen also headed for its first monthly advance against the dollar and the euro since January on speculation the outbreak of swine flu will keep spreading and after the World Health Organization warned the first influenza pandemic since 1968 is “imminent.”

Mexico, where the death toll from the disease is highest, said 159 people may have died. The WHO said there have been seven confirmed deaths in the nation from the disease. Egypt ordered the immediate slaughter of the country’s pigs, numbering as many as 400,000, said a spokesman for the country’s mission to the United Nations. French Health Minister Roselyne Bachelot will ask European transport ministers to suspend flights to Mexico, she told reporters in Paris yesterday.

‘Paralyze’ Activity

“The spread of swine flu may temporarily paralyze the economic activity internationally and derail any recovery,” said Tatsushi Shikano, a senior economist in Tokyo at Mitsubishi UFJ Securities Co. “For Japan, this tragedy may slash economic growth by 0.4 percentage point.”

The Bank of Japan will probably cut its economic and price forecasts at a policy meeting today. The economy will contract 4.2 percent in the year to March 2010, more than twice the pace the central bank projected three months ago, according to economists surveyed by Bloomberg News.

Governor Masaaki Shirakawa and his policy board left the overnight lending rate at 0.1 percent, as predicted in a Bloomberg News survey of economists.

New Zealand Dollar

New Zealand’s dollar fell from near a two-week high against the greenback after the central bank cut borrowing costs to a record and said the benchmark will stay low till late 2010, reducing the appeal of the nation’s assets.

Reserve Bank Governor Alan Bollard reduced the overnight cash rate by half a percentage point to 2.5 percent. He has lowered borrowing costs by 5.75 percentage points since July to counter the nation’s worst recession in more than three decades. Rates may go lower and will stay down “until the latter part of 2010,” Bollard said.

This was “a huge reaction on a huge statement,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp. “The yield support for the kiwi has evaporated even more after today, which should be a medium-term drag.”

New Zealand’s dollar dropped to 56.48 U.S. cents from 57.30 cents yesterday and declined to 54.97 yen from 55.98 yen.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Last Updated: April 30, 2009 00:59 EDT