Moody’s Downgrades Japan, Yen Rallies

The Japanese yen gained against the euro and erased losses versus the dollar today after Moody’s Investor Service downgraded Japan’s rating.
Moody’s cut Japan’s government rating to Aa3 from Aa2 and issued stable outlook. The rating agency rationalized the decision:

The rating downgrade is prompted by large budget deficits and the build-up in Japanese government debt since the 2009 global recession. Several factors make it difficult for Japan to slow the growth of debt-to-GDP and thus drive this rating action.

Finance Minister Yoshihiko Noda told reporters today that the government is going to use $100 billion to deal with the yen’s persistent strength. So far, the currency hasn’t reacted to the announcement. The report about business climate in Germany is scheduled to be released today and it’s expected to signal about worsening economic environment, making it possible for the yen to gain as demand for safety would increase.
USD/JPY near its opening level of 76.63 today as of 3:57 GMT, retreating from the intraday high of 76.87. EUR/JPY fell from 110.68 to 110.39.

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