The surge in the yen led Finance Minister Yoshihiko Noda to suggest that the currency’s strength gave a misleading picture of the Japanese economy.
“Our stance is clear,” Noda told parliament. “We will take decisive action against excessive exchange-rate volatility.” He added, “I’d like to carefully examine how long we can leave current moves [of the yen] unattended.”
The woes in Asia were compounded Friday by mounting concerns over an escalation of the debt crisis in Europe. Moody’s on Friday warned that it may further downgrade its debt rating on troubled Spain, citing challenges to growth and a sense that the recent European deal to bail out Greece had gone badly for investors. As part of the deal, European nations lending Greece funds — led by Germany — insisted that a group of private creditors take losses on their Greek investments.
“The official support package for Greece announced last week somewhat increases the potential for adverse market dynamics given the precedent it sets for possible private sector participation in the future provision of support for euro area member states,” Moody’s said in its report.
Moody’s also downgraded the debt on six cash-strapped Spanish regions, including Andalucia, Castilla y Leon and Valencia, and warned it was reviewing the debt issued by five major Spanish banks, citing their exposure to government debt. The bad news on Spain compounded fears that the impasse in Washington would spark a U.S. debt crisis, hitting markets with the prospect of crises on both sides of the Atlantic. Key indexes were down in London, Paris and Frankfurt.
On Thursday night the House delayed a vote on a plan to rein in U.S. debt and raise the borrowing limit by Tuesday, when the United States would run out of money to pay its lenders. On Friday, traders yet again sold the dollar and bought the yen. That activity brought the yen closer to its record post-war high of 76.25 against the dollar — a mark reached one week after the March 11 earthquake, tsunami and nuclear power plant disaster that triggered a crisis from which the Japanese economy is still recovering.
Although a strong yen makes imports cheaper, Japan has an export-dependent economy. A strong yen makes Japanese products more expensive abroad and threatens the profits of its biggest companies.
While financial experts retain hope that the United States can reach a deal to raise its debt ceiling before the deadline, the dollar’s reputation as a haven for investors is already being challenged.
Since the March 11 disaster, which caused energy shortages in Japan and will necessitate billions of dollars worth of government spending on reconstruction, the yen had hovered until this week in the low 80s against the dollar. Two weeks ago, Nissan chief executive Carlos Ghosn described the high yen as a “headwind,” adding that he worried not just about his own company, but about “Japanese manufacturers losing their motivation to maintain production in Japan.”
Fresh U.S. concerns have further pushed the yen’s rise, also hitting the Japanese stock market. The Nikkei 225 index dropped Friday for the third consecutive day, falling to 9,833.03 at the end of trading. Its 3 percent drop this week marked its biggest fall since the first full week of trading after the March disaster. Leading the fall were Nintendo, which plunged 12 percent after slashing its profit forecast, and Sony, which dropped 3.3 percent.
Faiola reported from London.