The yen weakened broadly today, after Standard & Poor’s cut Japan’s sovereign debt rating outlook to ‘negative’, citing costs for rebuilding from the country’s record earthquake.
S&P said late Tuesday that its revision to Japan’s outlook from ‘stable’ reflects the possibility of a downgrade. ‘Standard & Poor's expects costs related to the March 11 2011 earthquake, tsunami, and nuclear power plant disaster will increase Japan's fiscal deficits above prior estimates by a cumulative 3.7% of GDP through 2013.’ The rating agency also said its revision to the outlook was ‘to reflect the potential for a downgrade if fiscal deterioration materially exceeds these estimates in the absence of greater fiscal consolidation.’
The US dollar is likely to continue rallying against the yen if this afternoon’s durable goods orders exceed consensus forecasts. The data is scheduled for release at 1.30pm (London time) and expectations are for 2.1% rise. Excluding transportation, durable goods for March are expected to increase 2%.