TOKYO: Sovereign debt worries continued to encourage risk aversion in Asia trade on Tuesday, with the yen the beneficiary from concerns about the economies underpinning the dollar and the euro.
Ratings agency Standard & Poor's move to cut its outlook on US government debt threw the spotlight on the fiscal challenges faced by the world's biggest economy, as traders mulled the possibility of the US losing its AAA rating.
Resurfacing jitters over Greece's debt situation also turned up the heat on Europe's simmering debt crisis amid growing speculation one of the 17-nation eurozone's most troubled economies will have to restructure its debt.
"Even though the US has the world's largest and most diversified economy as well as the world's reserve currency, she is also an enormous net borrower on the international capital markets," noted Capital Economics.
The US is "not a net lender like Japan who can draw on a huge pool of domestic savings to finance her government's yawing fiscal deficit."
The yen was at 82.47 to the dollar, strengthening from 82.68 overnight. Against the euro the Japanese unit fetched 117.31, from 117.68. The euro was lower at $1.4217 to the dollar from $1.4235.
S&P cited the lack of a US plan for reducing its huge budget deficit and the difficulties in reaching a political agreement to slash the deficit.
"History says that when S&P has downgraded a country's credit rating outlook to negative it has followed this up with an actual ratings cut within six months on average 56 percent of the time," said John Kyriakopoulos at National Australia Bank.
The euro was hit after a German government official said Greece was unlikely to make it through the northern summer without asking for a debt restructuring. A poorly received Spanish debt auction only added to sovereign debt fears, noted Kyriakopoulos, while Greece's 10-year bond yield climbed to 14.3 percent.
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