Jan. 17 (Bloomberg) -- The risk of Japanese companies defaulting on their debt rose to a record today, according to traders of credit-default swaps. Contracts in Australia and the rest of Asia fell.

The Markit iTraxx Japan Series 8 Index increased 2 basis points to 56.5 basis points as of 9:23 a.m. in Tokyo, according to Morgan Stanley prices. The cost exceeds the previous high set yesterday. The benchmark index of 50 investment-grade Japanese companies, including All Nippon Airways Co. and Japan Tobacco Inc., rises as perceptions of credit quality deteriorate.

``There is some room for the index to go wider,'' said Yasuhiro Matsumoto, credit analyst at Shinsei Securities Co. Ltd. in Tokyo. ``The U.S. economy's probability of entering into a recession really affects the Japanese economy too.''

The Japan iTraxx rose for a 10th day after the Federal Reserve said growth slowed in late November and December and Intel Corp., the world's largest chipmaker, forecast sales that fell short of analyst's first-quarter estimates. The index may rise as high as 60 basis points within a month, Shinsei's Matsumoto predicted.

Credit-default swaps, financial instruments based on bonds or loans, were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default.

The Markit iTraxx Australia Series 8 Index declined after reaching record highs each trading day this year. The benchmark of 25 companies, including Qantas Airways Ltd. and BHP Billiton Ltd., fell 2 basis points to 102.5 basis points, according to prices from Citigroup Inc.

Asia Outside Japan

The Markit iTraxx index of 20 high-risk, high-yield Asian borrowers outside Japan fell 5 basis points to 428 basis points, JPMorgan Chase & Co. prices show. The investment-grade index, which includes the Thai government and Hong Kong's Hutchison Whampoa Ltd., fell 2 basis points to 113 basis points.

The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.

To contact the reporter on this story: Oliver Biggadike in Tokyo at obiggadike@bloomberg.net.

Last Updated: January 16, 2008 21:24 EST