* Yen falls as S&P cuts Japan debt rating to AA-minus
* Downgrade raises questions about other rich nations
* ECB's Bini Smaghi: Can't ignore import goods inflation
(Adds comment, byline, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 27 (Reuters) - The yen fell to two-month lows
against the euro and two-week troughs versus the U.S. dollar on
Thursday, with further losses likely, after Standard & Poor's
slashed Japan's long-term debt rating.
The S&P move matched an earlier ratings cut by Fitch and
raised concerns about the risks of downgrades for other
developed economies.
Although Japan's fiscal troubles are well known, analysts
said the downgrade called into question the yen's status as a
safe-haven currency, boosting the appeal of the dollar and the
likes of the Swiss franc
S&P, in downgrading Japan to a rating of AA-minus, said the
country's government lacked a coherent plan to tackle its
mounting debt. []
"It's not good news but it's not entirely surprising. We
know for instance that the Japanese fiscal situation is quite
weak," said Shaun Osborne, chief FX strategist at TD Securities
in Toronto.
"And we know that the longer-term trends are quite weak as
well given the demographic situation in Japan in terms of age
and population which could put tremendous pressure on the
fiscal situation."
Overall, Osborne said the S&P move reinforces the potential
for the yen to underperform broadly.
Several brokerage houses are also looking at a higher
dollar/yen pair. Nomura, for instance, is forecasting the
dollar to rise to 85 yen by end-2011 and 90 by the end of next
year.
In early afternoon trading, the dollar was up 0.7 percent
at 82.90 yen <JPY=EBS> after rising to two-week peaks at 83.22
on electronic trading platform EBS.
The euro <EURJPY=EBS> rose to 114.02 yen, its strongest
since Nov. 22, and was last at 113.60, up 0.8 percent.
So far, analysts say Japan is unlike other nations in that
95 percent of its debt is held by domestic investors, but its
fiscal situation does sharpen the focus on similarly highly
indebted countries such as the United States.
The U.S. budget deficit, for instance, is expected to surge
to a record $1.5 trillion this year while debt worries in
Europe have already spurred rescues of Greece and Ireland.
Vasileios Gkionakis, macro strategist at Fulcrum Asset
Management LLP in London, however, downplayed the risks of a
downgrade to the United States. He said the U.S. gross domestic
product is forecast to accelerate while Japan's will likely
moderate. In addition, Japan's debt-to-GDP ratio is twice as
high as that of the United States.
And though deficits in both countries are large, the United
States's is expected to improve more than Japan's, Gkionakis
said. Fulcrum oversees $900 million in assets.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic comparing Japan's debt and deficit levels:
http://r.reuters.com/byz67r
See [] for BREAKINGVIEWS on Japan downgrade
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Some analysts said the euro may be better placed to gain
against the yen than the dollar given its better interest rate
outlook and worries about U.S. deficit problems.
The euro <EUR=EBS> rose to $1.3760 on EBS, its strongest
since Nov. 22, keeping intact a strong uptrend from a
four-month low below $1.29 hit earlier in the month. It later
eased to $1.3729, up 0.2 percent on the day.
The euro pierced resistance around $1.3740, the 61.8
percent retracement of its two-month decline until early
January. Technical analysts said a daily close above that would
add to the positive tone. The next target is the Nov. 22 high
of $1.3786, and some analysts say a break of this could prompt
more gains towards $1.40.
The euro was also boosted on Thursday by remarks from
European Central Bank policy maker, Lorenzo Bini Smaghi, who
warned that an expected rise in imported goods inflation cannot
be ignored [], supporting the view that euro zone
rates could rise sooner than later.
(Additional reporting by Nick Olivari and Wanfeng Zhou;
Editing by Chizu Nomiyama)
