Dollar Rises vs Yen as Japan Placed on Review for Downgrade by Moody's
Dollar Rises vs Yen as Moody's May Cut Japan's Rating (Update1) (Adds
investor comment in 2nd paragraph, possibly downgrades by Moody's of
Japanese companies in 2nd section. Updates rates.)
New York, July 23 (Bloomberg) -- The dollar rose for a third day against
the yen as Moody's Investors Service said it may cut Japan's credit
rating, further eroding investor confidence in the country and hampering
efforts to lift it out of recession. ''This is further confirmation that
Japan has a long road ahead of it and real structural problems,'' said
Laura Zimmerman, a global bond manager at Payden & Rygel in Los Angeles,
which oversees $26 billion. ''That spells weakness in the yen. Japanese
fundamentals are going to get weaker before they get better.''
In late New York trading, the dollar rose as high as 142.08 yen, its
highest level since July 13, from 141.11 yesterday. It was recently at
141.45 yen and is up 8.3 percent this year. The U.S. currency fell to
1.7862 marks from 1.7882 as a decline in U.S. stocks offset expectations
that German interest rates won't be headed higher any time soon.
The dollar gave up some yen gains as talk circulated among traders in
New York and London that the U.S. Federal Reserve sold Treasury bills on
behalf of the Bank of Japan, in possible preparation for another round
of intervention to defend the yen, traders and analysts said.
A spokesperson at the Federal Reserve Bank of New York declined to
comment on the speculation. ''At above 141 yen, you've got to be
thinking about whether this is the time and place for the Fed to
intervene again,'' said Ed Garston, currency analyst at I.D.E.A. Market
Research in London. The U.S. and Japanese governments jointly sold an
estimated $6 billion June 17 to defend the yen.
The dollar started falling in Asian trading after Moody's, the U.S.
rating company, said it was concerned about ''deep, structural problems
in the (Japanese) economy that have defied conventional remedies.''
Japan Rating
Japan's debt rating is currently ''Aaa,'' the highest possible and the
same as that of the U.S., Germany and the U.K.. A lower rating would
mean Moody's has growing doubts about Japan's creditworthiness.
Moody's also said it may lower ratings of eight ''Aaa''- rated Japanese
companies. Government and corporate downgrades could lead to higher
government and corporate borrowing costs, as risk-averse global
investors demand higher yields. ''This is a downgrading of the country
and it's negative for the yen,'' said Joe Cambria, head of New York spot
trading at Credit Suisse First Boston. If Moody's moves to downgrade,
''there would be nothing 'triple A' over there.'' The dollar could rise
to 160 yen before the end of the year, he said.
A Japanese company with an ''Aa'' rating currently has to pay 5 basis
points more on debt issued in the eurobond market than a company with a
higher ''Aaa'' rating. A company typically issues debt in the eurobond
market when it wants to raise money overseas.
More immediately, the dollar could rise as high as 143 yen today, said
Tetsu Aikawa, a foreign exchange manager at Sanwa Bank Ltd. in Tokyo.
A rising dollar comes as bad news to some U.S. companies that sell
products overseas, because it means revenue denominated in foreign
currencies translates into fewer dollars when companies bring profits
home.
Dow Chemical Co., the world's fifth-largest chemical company, said
second-quarter profit dropped 18 percent in part because of the strength
of the dollar.
German Rates
The dollar gained against the mark as the German central bank left its
securities repurchase rate unchanged. The U.S. currency also is
benefiting from expectations that German interest rates won't be headed
higher any time soon.
A report today showed German import prices dropped a greater-
than-expected 0.9 percent in June, the 10th straight monthly decline and
a further sign price pressures are absent from the economy. Analysts in
a Bloomberg News survey forecast a 0.4 percent decline.
Still, the U.S. currency gave up gains as U.S. stocks declined. The Dow
Jones Industrial Average fell 106.08 points in midafternoon trading to
9022.83. Global investors selling U.S. securities often convert the
dollar proceeds into other currencies.
Elsewhere, sterling rose to $1.6510 from $1.6440 yesterday. The dollar
was little changed at 5.9905 French francs from 5.9935 francs and at
1.5067 Swiss francs from 1.5110 francs. It was also little changed at
1761.80 Italian lire from 1764.50 lire and at 1.4942 Canadian dollars
from 1.4964.
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