13 February 2002, 09:31 Forex - Yen weaker in midafternoon Tokyo trade on ratings concerns
TOKYO (AFX-ASIA) - The yen was weaker against other major
currencies in midafternoon trade following an announcement by Moody's
that it will review the Aa3 rating of yen-dominated domestic securities
issued or guaranteed by the government for possible downgrade, dealers
said.
Moody's said that that the review will either result in a
confirmation of the Aa3 government domestic yen rating or a lowering of
the rating by one or two notches.
If Moody's downgrades by one notch to A1, the rating would become
the lowest among G7 nations, and the same level as Hungary and Chile.
A two notch downgrade to A2 would put Japan's rating in the same
category as that of Poland and Greece.
Moody's said that deflation is making a serious government debt
problem worse, adding that: "The longer it takes for the government to
fashion an effective policy response to deflation, the more complicated
solving other economic problems becomes."
The review will focus on assessing the range of possible outcomes
for current and future government policy and reform initiatives,
according to Moody's.
Aozora Bank deputy manager of forex trading group Hiroyoshi
Kinoshita said the yen fell against the dollar after Moody's news,
saying that: "The news negatively affected the yen."
He said however, that the dollar will turn top-heavy against the
yen ahead the forthcoming visit to Japan by US President George W.
Bush, expected Sunday.
"As some market participants are expecting that the government will
announce a more aggressive plan to tackle deflation before the Bush
visit, I don't think the yen will be sold actively ahead of that,"
Kinoshita said.
According to a report by the Jiji Press, Prime Minister Jyunichiro
Koizumi will likely ask economic ministers to draft a more concrete
package to tackle deflation.
Kinoshita said it is possible that the government will announce a
more concrete plan to counter deflation, saying that the government has
now been "driven into a corner" to revive the slumped economy.
Kinoshita said even if the government announces an aggressive
package to tackle deflation, the yen will likely fail to recover the
129.00 level to the dollar.
"I think if the dollar falls below the 130.00 level, I expect that
dollar short-covering against the yen will emerge," he said.
Kinoshita said dollar/yen will move in the range of 131.00-135.00
for the short-term.
The euro is rangebound against the major currencies with no new
fresh leads, dealers said.
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