Yen Skyrockets After First Upgrade to Debt Rating Since 1975

Expect the Japanese Yen to be a big focus of currency traders this week. The initial wave of yen buying that has caused a reversal in carry trades was sparked by S&P’s upgrade of Japan’s sovereign debt rating from AA- to AA for the first time since 1975. We are certain that the recent weakness in the Japanese Yen is a contributing factor to their rosier outlook on the banking sector and overall economic growth.

Later this week, we have a tremendous amount of Japanese economic data due for release. It is only a matter of time before economic data begins to show the beneficiary impact of a weaker currency. This week’s data has the potential to reflect the turn. Meanwhile, keep an eye on the Dow. Over the past two months, we have seen carry trades move in lockstep with the stock market index. The Dow is struggling to break above the 13,000 psychological point of contention and that may be partially due to the profit taking that we are seeing in the currency market as both instruments are a reflection of the market’s demand for risk.