Yen Gains, Under Pressure from Credit Rating Downgrade

The Japanese yen rallied yesterday and maintained its gains today. The currency was under pressure after Moody’s Investor Service decided to cut Japan’s credit rating on Monday. The yen remained soft against the Great Britain pound.
Moody’s decided to slash Japan’s debt rating by one notch to A1 from Aa3, keeping the outlook stable. The rating agency explained its decision by following considerations:

1. Heightened uncertainty over the achievability of fiscal deficit reduction goals;

2. Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and

3. In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.

This was bad news for the yen, but it held ground. The currency got support by risk aversion following last week’s OPEC decision and Monday’s negative economic data from the United States.
USD/JPY traded at about 118.44 as of 3:30 GMT today following yesterday’s drop from 118.76 to 118.39. EUR/JPY declined from 147.96 to 147.62 during the previous trading session and remained close to that level during the current session. GBP/JPY traded at 186.28, near the highest level since October 2008.

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