Yen Advances as U.S. Government May Let Carmakers Go Bankrupt

April 1 (Bloomberg) -- The yen strengthened on speculation President Barack Obama will let U.S. automakers go bankrupt, reviving demand for the Japanese currency as a refuge from the global financial crisis.

The yen climbed versus all of the 16 most-active currencies after people familiar with the matter said Obama has determined a prepackaged bankruptcy is the best option for General Motors Corp. and is prepared to allow Chrysler LLC to go bankrupt.

“The news about the U.S. carmakers spurred investors to buy the yen,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. Prepackaged bankruptcy “is the fastest and best way to fix the problem.”

The yen advanced to 98.67 versus the dollar as of 9:19 a.m. in Tokyo, from as low as 99.47 earlier and from 98.96 yesterday in New York. Japan’s currency strengthened to 130.43 per euro from as low as 131.89 earlier and from 131.13. The dollar traded at $1.3241 versus the euro from $1.3250.

The yen earlier weakened after a central bank survey showed Japan’s business confidence dropped the most on record.

The Bank of Japan’s Tankan survey of sentiment among large manufacturers dropped to minus 58 in March from minus 24 in December, the central bank said today in Tokyo. Economists expected a decline to minus 55, according to a Bloomberg survey.

Japan’s currency tumbled 8.4 percent against the dollar in the first quarter, the worst performance since the last three months of 2001, and weakened 3.5 percent versus the euro, the first quarterly drop since June.

Factory output declined 9.4 percent in February, the fifth month of declines, the Trade Ministry said March 30. The jobless rate rose to 4.4 percent and household spending plunged 3.5 percent in February, the statistics bureau said yesterday.