Japan downgraded by Moody’s, JPY strengthens

Japan unveiled a $100 billion effort to help companies cope with a surging yen, signaling that officials may be resigned to the currency remaining high. The government will release foreign-exchange reserves to the state-run Japan Bank for International Cooperation for funding to aid exporters and spur purchases overseas, Finance Minister Noda said today. Japan’s one-year funding program is intended to encourage “the private sector to exchange yen-denominated funds to foreign currencies by supporting exports by small and mid-sized companies, securing energy resources and helping Japanese companies to purchase foreign businesses. The announcement came after Moody’s lowered the nation’s debt rating one step to Aa3, with a stable outlook. The yen’s appreciation is bad for the economy and may exacerbate the nation’s fiscal woes, and it is unlikely Moody’s would take negative action on the credit rating over the next 18 months as stated by Moody’s.

The yen rose against all its major counterparts after traders shrugged off Noda’s announcement of a $100 billion effort designed to cope with persistent strength in Yen. The USDJPY erased an earlier rise, trading at 76.53 lows as Noda said the government will release foreign-currency reserves to a state-run export credit agency to facilitate overseas investment. The EURUSD fell from yesterday’s one-week high trading at 1.4387 lows before a report forecast to show German business confidence deteriorated to its lowest level in a year. The NZDUSD slid to 0.8267, reducing yesterday’s jump, and the Korean won depreciated as a drop in Asian stocks reduced demand for higher-yielding assets.

The euro fell against the majority of its peers amid concern that growth is slowing in Germany and before a separate report forecast to show European industrial orders grew at a slower pace in June. The IFO business climate index probably declined to 111 in August from 112.9 in July while industrial new orders in the EU probably rose 0.4% from May, when they increased 3.6%.
German IFO business climate index, EU industrial new orders, US Durable Goods Orders and Crude oil inventories form today’s economic calendar.