Yen touch softer after Japan rating downgrade

The yen came under light pressure on Wednesday after Moody's cut its rating of Japan's government debt and on news that Finance Minister Yoshihiko Noda will hold a news conference at 11:30 a.m. (0230 GMT) on steps to curb the yen's advance.

The dollar last traded up 0.2 per cent at 76.78, off session highs at 76.88 yen after exporters capped its gains in end-of-month transactions during the Tokyo fix.

Traders said a failure by Noda to unveil any measures to curb the yen could result in its renewed rise, with investors already wary of potential yen-selling intervention in the wake of the greenback's drop to record low of ¥75.941 last week.

"He (Noda) may end up saying things that don't need to be said and the dollar could be sold on disappointment," a trader for a major Japanese brokerage said.

Moody's downgraded Japan by one notch to Aa3, blaming large budget deficits and a buildup of debt since the 2009 global recession. Still, such cuts have had scant effect on yields as the vast bulk of Japanese debt is owned by the Japanese themselves.

"Moody's rating is now equivalent to what S&P had for Japan's government debt. So it's just a bit of catch-up. The market didn't react too much and I don't expect dollar/yen to rise that much," said Joseph Capurso, a strategist at Commonwealth Bank in Sydney.

The currency pair still remains in a slim range between 75.94 and 77.20. The yen was also lower against the euro, shedding 0.2 per cent to 110.70 .

The single European currency came within a whisker of $1.4500 before losing a bit of steam to trade down 0.2 per cent at $1.4416 . Traders cited ongoing concerns that the Greek bailout package may be in jeopardy and about the state of the global economy after weak data out of Germany .

A minister in Angela Merkel's conservative party propelled Germany into a euro zone debate about guarantees for Greek aid, backing a demand for collateral by Finland, which said it could quit the bailout programme if its request was turned down.

The euro, together with other risk-sensitive currencies, was also under pressure as Asian bourses did not bounce as much as Wall Street overnight, with S&P futures already down 0.5 per cent and gold firming on renewed risk aversion.

Some investors are hoping Fed chairman Ben Bernanke will use his speech at the central bank's annual symposium in Jackson Hole, Wyoming, on Friday to prepare markets for more stimulus.

Last year, Bernanke used the meeting to bring up the idea of the central bank's $600 billion bond-buying programme that became known as QE2. That pumped money and confidence into markets.

Many Fed watchers, however, think Bernanke will be more circumspect and the market could be disappointed.

"I think that Jackson Hole may actually be a huge non-event with limited impact on dollar/yen," said a trader for a Japanese bank who spoke on condition of anonymity.

"Surprisingly, the only effect from it may be renewed pressure on the euro as the market's focus will turn to the euro-zone debt problems," said the trader.

Commodity currencies gave up some of the hefty gains they made on Tuesday as manufacturing data in China and Europe were less grim than feared. The Australian dollar was at $1.0484, having climbed more than a cent to around $1.0535.

The Aussie sank further below its 21-day moving average of 1.0554. Support loomed around $1.0331, the 200-day moving average.

The data was better than feared but still pretty gloomy. It showed economic growth stagnating in Europe and cooling slightly in China, keeping alive concerns about the risk of a global slump.

"The market is becoming more pessimistic about the economic outlook and is responding by pricing in a greater chance of QE3," said Bricklin Dwyer, an economist at BNP Paribas.

"The reality is that we are getting more data confirming a slowdown in manufacturing activity and a dead cat bounce in the (US) housing sector," he wrote in a client note.