Yen Surges Against Dollar as U.S. Debt Downgrade Shakes Markets

The Japanese yen has gained significant ground against the U.S. dollar, a shift that began around the midpoint of the American trading session. This movement was triggered by investors reacting to headlines about a downgrade in the credit rating of U.S. debt. The news sparked intense selling of U.S. Treasury bonds, driving up their yields. However, as markets digested the developments, the aggressive sell-off subsided, and benchmark Treasury bond prices started to stabilize.

Moody’s, a leading credit rating agency, lowered the United States’ credit rating by one notch from “Aaa” to “Aa1.” The agency cited rising U.S. debt levels and interest rates that are “significantly higher than those of comparable sovereign securities” as the reasons for the downgrade. This adjustment rattled financial markets, contributing to the initial surge in Treasury yields.

An inverse relationship exists between the yields of benchmark U.S. Treasuries—specifically those with a ten-year maturity—and their prices. As bond prices stabilized, yields began to decline on Monday, reflecting a calming of market turbulence. Similarly, there is an inverse correlation between the Japanese yen and U.S. Treasury yields. The drop in yields provided a tailwind for the yen, enabling it to strengthen against the dollar.

Consequently, the USD/JPY currency pair fell to 144.85, down from its previous Friday close of 145.69. Earlier in the week, the pair had reached a high of 145.46 during Monday’s trading session, with a low of 144.66. The yen’s advance underscores its sensitivity to shifts in U.S. financial markets and highlights the broader impact of the U.S. debt downgrade on global currency dynamics.