Sell, sell, sell! The yen was taken deep into the bear lair yesterday as sellers went crazy after Moody’s threatened to downgrade Japan’s credit rating. When the dust finally settled, USD/JPY found itself 58 pips higher while EUR/JPY ended 172 pips higher.
Moody’s couldn’t have chosen a better name for its credit rating agency. Yesterday, it showed us exactly how moody it can get when it announced that it will be putting Japan’s debt rating on review for a downgrade! Moody’s cites the economy’s grim outlook and weak policy response as the reasons behind its decision to put Japan on downgrade watch.
The yen also had to battle weak economic data yesterday. Hey, when it rains, it pours!
Japan’s household spending fell below expectations as it printed a 3.0% decline (versus a 2.7% decrease) following the previous month’s 8.5% drop. Adding to the heartache, Japan’s unemployment rate rose from 4.6% to 4.7% in April. And to top it all off, its industrial production also disappointed, showing a mere 1.0% increase instead of the 2.6% that markets had expected.
Phew! What a bummer! I wonder what BOJ Governor Shirakawa has to say about all this as he’s due to speak sometime today. If he dishes out a few dovish words and gives hints about a looser policy, it could lead to further losses for the yen. Stay tuned, kids!