A downgrade of Japan's credit rating resulted in the predictable reaction of the US dollar rising sharply against the yen.
Ratings agency Standard & Poor’s lowered its rating on the country from AA to AA-, arguing that the country’s fiscal deficits will remain high in the next few years. Tokyo’s debt ratios, which are already among the highest among its peers, are expected to rise further, S&P said, and will peak sometime in the mid-2020s. In a stinging rebuke to the Japanese government, the agency said that the current administration lacked a coherent strategy to deal with the debt situation. News of the downgrade overwhelmed reports that Japanese export growth had risen in December, by 13%, above the 9.1% growth seen in November. The improvement in the economy suggested by these figures will mean that optimism surrounding the Japanese economy will increase, although if other ratings agencies follow the lead set by S&P then the yen could fall further against the US dollar.