Yen sinks in New York

The yen fell to two-month lows against the euro and two-week troughs versus the US dollar on Thursday, with further losses likely, after Standard & Poor's slashed Japan's long-term debt rating. The S&P move matched an earlier ratings cut by Fitch and raised concerns about the risks of downgrades for other developed economies.
Although Japan's fiscal troubles are well known, analysts said the downgrade called into question the yen's status as a safe-haven currency, boosting the appeal of the dollar and the likes of the Swiss franc S&P, in downgrading Japan to a rating of AA-minus, said the country's government lacked a coherent plan to tackle its mounting debt.
"It's not good news, but it's not entirely surprising. We know for instance that the Japanese fiscal situation is quite weak," said Shaun Osborne, chief FX strategist at TD Securities in Toronto.
"And we know that the longer-term trends are quite weak given the demographics in Japan in terms of age and population which could put tremendous pressure on the fiscal situation." Overall, Osborne said the S&P move reinforces the potential for the yen to underperform broadly. Several brokerages are also looking at a lower yen against the dollar. Nomura, for instance, is forecasting the dollar to rise to 85 yen by end-2011 and 90 by the end-2012.
"Continued weak economic fundamentals combined with an ineffectual political establishment suggest that the yen at some point in 2011 will start to weaken," wrote Ken Dickson, investment director of currency, at Standard Life Investments in Edinburgh in a research note. Standard Life has assets under management of roughly $214 billion. In late afternoon trading, the dollar was up 0.7 percent at 82.86 yen after rising to two-week peaks at 83.22 on electronic trading platform EBS.
The euro rose to 114.02 yen, its strongest since November 22, and was last at 113.82, up about 1.0 percent. So far, analysts say Japan is unlike other nations in that 95 percent of its debt is held by domestic investors, but its fiscal situation does sharpen the focus on similarly highly indebted countries such as the United States.
The US budget deficit, for instance, is expected to surge to a record $1.5 trillion this year while debt worries in Europe have already spurred rescues of Greece and Ireland. Vasileios Gkionakis, macro strategist at Fulcrum Asset Management LLP in London, however, downplayed the risks of a downgrade to the United States.
He said the US gross domestic product is forecast to accelerate while Japan's will likely moderate. In addition, Japan's debt-to-GDP ratio is twice as high as that of the United States. The euro rose to $1.3760 on EBS, its strongest since November 22, keeping intact a strong uptrend from a four-month low below $1.29 hit earlier in the month. It last traded at $1.3732, up 0.3 percent on the day.