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Moody’s warns against Japan FX action

08 August 2011 13:41 (UTC +04:00)

Baku â€“ APA-Economics. Moody’s Investors Service warned Japan that ineffective currency intervention would be negative for its sovereign ratings and would not help it restore its finances, even as G7 policymakers tried to show solidarity against market turmoil sparked by U.S. and European debt woes, Reuters reported.

The warning was a shot across the bow for Japan, saddled with public debt double the size of its $5 trillion economy, just days after the United States lost its top-tier AAA credit rating from Standard & Poor’s.

Finance Minister Yoshihiko Noda on Monday signalled Tokyo’s readiness to continue intervening in the currency market to stem yen rises, citing a Group of Seven agreement to jointly counter any excessive and disorderly exchange-rate moves.

Moody’s, however, said that while Japan’s solo currency intervention and monetary easing last week initially pushed the yen lower against the dollar, the effect proved short-lived and was a negative for the economy and its credit rating.

Moody’s announcement came hours after G7 finance leaders signalled their readiness to take coordinated action against excessive and disorderly currency moves.

A G7 telephone conference was arranged after worries of another U.S. recession and concern about the euro zone debt crisis hit global stocks and pushed the yen up near record highs, as investors sought the currency as a safe haven.

The yen’s spike prompted Japan to sell 4.6 trillion yen ($59 billion) in the currency market last week and the BOJ to ease monetary policy to alleviate the pain to the export-reliant economy.

But the moves have failed to push the dollar sustainably above 80 yen -- the rate on which many manufacturers have based their earnings forecasts for the current fiscal year. It stood around 77.80 yen on Monday.