Yen drops on Moody's Japan debt warning

TOKYO: The dollar jumped against the yen in Asian trade Tuesday after ratings agency Moody's said it could lower Japan's Aa2 government debt rating.

The greenback rose to 81.23 yen in Tokyo afternoon trade from 80.79 yen in late Monday. The euro fetched $1.4382, up from $1.4264, and 116.82 yen from 115.24 yen.

Markets in London and New York were closed on Monday for public holidays.

Moody's said Tuesday it could cut Japan's sovereign debt rating within three months, voicing doubt its leaders would be able to contain the industrialised world's biggest debt.

Japan's government debt is already twice the size of its roughly $5 trillion economy and is set to grow with reconstruction costs from the March 11 quake, tsunami and nuclear disasters.

With one of the lowest birth rates and highest life expectancies, Japan's population of 127 million started shrinking several years ago, reducing the labour pool and raising welfare obligations.

Moody's in its warning cited "heightened concern that faltering economic growth prospects and a weak policy response would make more challenging the government's ability to fashion and achieve a credible deficit reduction target".

"Without an effective strategy, government debt will rise inexorably from a level which already is well above that of other advanced economies."

Takako Masai, general manager of markets sub-group at Shinsei Bank, told Dow Jones Newswires: "There is uncertainty how the government is going to come up with supplementary budgets, and it is unclear how the revenue for the recovery is funded."

"Japanese politics can be yen-selling factors" in coming weeks, she added, while noting the uncertainty over the US economic recovery and Greek debt problem may support the Japanese unit in the longer term.

The euro earlier rose against the dollar after The Wall Street Journal reported that Germany was considering dropping its push for a rescheduling of Greek bonds, said a dealer in Tokyo.

The gain was magnified amid thin trading, he said.

But Daisaku Ueno, chief analyst at Gaitame.Com Research Institute, said: "It remains unclear whether Greece may be able to recover without a debt restructuring in the long-run even if concerns somewhat recede over an early debt restructuring for now."

Talks with auditors from the EU, International Monetary Fund and European Central Bank have dragged into an unprecedented fourth week and Athens' ongoing debt woes are causing friction in European capitals and market concern.

The greenback was largely lower against regional Asian currencies, falling to Sg$1.2319 from Sg$1.2342 on Monday, to 1,076.95 Korean won from 1,080.55 and to Tw$28.69 from Tw$28.77.

The unit also dropped to 8,537.50 Indonesian rupiah from 8,552.50 and to 30.30 Thai baht from 30.32.

The greenback edged up to 43.30 Philippine pesos from 43.26.

Copyright AFP (Agence France-Presse), 2011