It looks like the positive market sentiment has been turning around as riskier currencies reversed their previous gains during Tuesday’s trading session, while safer ones recovered. As a result, the Japanese yen gained against almost all most-traded currencies, except for the Swiss franc — another safe-haven currency.
Macroeconomic data released in Japan today was better than expected. Japan’s Ministry of Health, Labor, and Welfare reported that average cash earnings fell by 3.2% in December from a year ago, accelerating compared with the previous month’s 1.8% rate of decline. Nevertheless, the actual reading was better than the median forecast of a 4.7% drop. According to a report from the Bank of Japan, M2 money stock increased by 9.4% in January, year-on-year, accelerating from December’s 9.1% rate of growth. Economists were expecting a smaller increase of 9.2%.
Over the weekend, Fitch Ratings affirmed Japan’s ‘A’ credit rating but with a negative outlook. The agency cited the following considerations for the rating decision:
Japan’s ratings balance the strengths of an advanced and wealthy economy, with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt. Strong external finances are underpinned by a persistent current account surplus, a large net external creditor position, and the yen’s reserve currency status.
As for the outlook, the statement explained:
Fitch has retained a Negative Outlook on Japan’s ratings, given continued downside risks to the macroeconomic and fiscal outlook from the coronavirus shock. We expect the large fiscal support to be unwound gradually, but downside risks to growth exacerbate the challenge of placing the debt ratio on a downward path over the medium term.
USD/JPY dropped from 105.21 to 104.70 as of 11:07 GMT today. EUR/JPY was down from 126.77 to 126.49 intraday but has rebounded to 126.70 later. CHF/JPY was up from 117.06 to 117.15, rebounding from the session minimum of 116.88.
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