MW: Dollar jumps against yen after Japan downgrade
By Deborah Levine and Sarah Turner, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar jumped 1% against the Japanese yen Thursday after Standard & Poor’s lowered its rating on the world’s third-largest economy.
The greenback’s move was more muted against the euro ahead of the session’s U.S. economic data.
The dollar (USDYEN 83.0400, +0.8700, +1.0585%) bought 82.14 yen, down from ¥82.26 in the previous session.
The dollar index (DXY 77.78, -0.12, -0.15%) , which tracks the U.S. unit against a basket of six other currencies, traded at 77.781, little changed from 77.776 in late North American action on Wednesday. See real-time currency quotes and tools.
The euro (EURUSD 1.3719, +0.0007, +0.0511%) traded at $1.3720, up slightly from $1.3706 late the previous day.
The British pound (GBPUSD 1.5966, +0.0037, +0.2323%) edged up to $1.5958, compared to $1.5912 late Wednesday.
The euro gained 1.2% against the yen to buy ¥113.94.
S&P downgraded Japan to AA-minus, saying the country’s political leaders lack a coherent strategy to address its debt dynamics. Read more on Japan’s downgrade.
The downgrade is unlikely to cause a major shift by investors out of Japanese government bonds, known as JGBs, because the country still holds a solid investment-grade rating and about 95% of its debt is held by Japanese investors, banks and its pension funds, said currency strategists at Citigroup.
“This move could dissuade regional reserve managers from investing in Japanese assets,” they wrote in a note. “However, more important than such flow mechanics is the blow to sentiment from the move. The downgrade may serve to re-center market focus on Japan’s relative weak fiscal positions.”
At 8:30 a.m. Eastern, reports on weekly jobless claims and December durable-goods orders will be released.
On Wednesday, the Federal Reserve’s policy-setting Federal Open Market Committee kept U.S. interest rates on hold at ultra-low levels and signaled that it will press ahead with its $600 billion asset-buying program. Read more on Federal Reserve decision.
“With the FOMC meeting out of the way, the markets will be looking at the upcoming U.S. data for signs of recovery,” said currency strategists at BNP Paribas.
“Of particular importance will be fourth-quarter gross domestic product on Friday,” they said, adding that a strong GDP and weekly jobless-claims number could prompt gains for the greenback.
The Australian dollar (AUDUSD 0.9907, -0.0082, -0.8211%) declined 0.7% to 99.19 U.S. cents after Australian Prime Minister Julia Gillard announced a one-time tax to help pay for damage caused by recent floods in the nation’s eastern states. Read more on Australian flood-tax plan.
That also limited the Aussie’s gain against the Japanese yen to 0.4%.
