By Mari Murayama and Kanako Chiba
Tokyo, Nov. 26 (Bloomberg) -- The yen, little changed, may fall for a fourth day against the dollar after Fitch IBCA Duff & Phelps cut Japan's credit rating and criticized the government for failing to spur growth in the economy and borrowing too much.
Fitch said the national debt will keep rising as the government ``vainly'' tries to spend its way out of a recession. Standard & Poor's and Moody's Investors Service have also warned they may downgrade Japan.
The yen traded at 124.26 per dollar from 124.22 yen in New York Friday. It earlier weakened to 124.46, matching its lowest level since Aug. 2. It was little changed at 109.26 per euro.
``The market is focusing on Japan's economic weakness,'' said Masamichi Nomura, head of foreign exchange trading at BNP Paribas SA. ``Fitch's downgrade assured the trend'' for a weaker yen has further to go. ``The yen may fall 1.5 percent to 126 per dollar this week, he said.
The yen may also fall as Group Plc reported Standard & Poor's may cut Japan's rating by two notches, traders said.
The yen recouped early losses after Haruhiko Kuroda, vice finance minister of International affairs, refuted a report the Bank of Japan may start buying overseas bonds. Speculation about the buying sent the yen lower last week after Bank of Japan board member Shin Nakahara said Thursday the option of buying foreign bonds shouldn't be ruled out.
The Financial Times newspaper also reported the U.S. would probably support this move by the BOJ. MOF's Kuroda said the Financial Times report was ``mistaken,'' and ``I have not heard anything from the Bank of Japan on this issue.''
Some traders said Japan would have to swap yen for other currencies to buy the debt, adding to the supply of yen and diluting its value.
Denial
Fitch's cut in Japan's rating to ``AA'' from ``AA+'' takes the nation down to the agency's third-highest rating, the same rank given by Moody's Investors Service and a rung lower than Standard & Poor's, which has said it may cut it's rating two notches if government debt swells.
``Denial over the severity of the economic problems facing Japan and persevering with a muddling-through approach will further erode creditworthiness and Japan's sovereign ratings,'' the London-based rating company said.
Also hurting the yen, Mizuho Holdings Inc., the world's biggest lender by assets, and two rivals will likely forecast billions of dollars of full-year losses when the world's three biggest banks report first-half results today, amid rising defaults and falling stock prices.
Almost A Crisis
Investors are focused on banks' loan write-offs and on forecasts for the full year to March. The government, which estimates 150 trillion yen ($1.2 trillion), or 30 percent, of advances are overdue or likely to go bad, wants the top banks to dump 17 trillion yen of their worst loans within three years.
``Everybody knows the figures are not necessarily true or revealing the true picture of these banks,'' said Sejiro Takeshita, a senior strategist with Mizuho International Plc. in London. ``I think we are very close to almost a crisis situation.''
The dollar may be helped on expectations reports this week will signal the U.S. economy will recover faster than Japan and the euro region.
A rise in U.S. stock indexes last week and progress in the U.S. military campaign in Afghanistan probably lifted the Conference Board's gauge of consumer confidence from a 7 1/2-year low, analysts said. Orders for durable goods probably had their first increase in five months in October.
``A good conference board index and optimism for an early U.S. recovery will push up the dollar,'' said Naoto Ohnuma, senior manager the foreign-exchange unit at Mitsubishi Corp.
In other trading, the dollar fell to 1.6636 Swiss francs from 1.6662 francs in late New York. The British pound was quoted at $1.4142, up from $1.4095 Friday.