Japanese equities are languishing following further dollar weakness on fears of a US debt default. The greenback’s retreat is threatening to undermine the country’s export sector by reversing the yen weakness as engineered by prime minister Shinzo Abe’s monetary loosening drive.
Abe’s quantitative easing (QE) drive, which will see the country’ s monetary stock double inside of two years, had hitherto crushed the value of the yen. However, the prospect of a gridlock in Washington to raise America’s debt ceiling before it is struck on 17 October has eclipsed these efforts.
Ever since the Republican-controlled House of Representatives threatened to block a proposal to raise the debt ceiling on Friday (27 Sept), unless president Barack Obama agrees to cuts his healthcare plans, the greenback has been in retreat. The country shut down key services on Tuesday (2 Oct) after a deadline passed on Monday (1 Oct) without accord to raise the ceiling.
America has until 17 October to reach agreement being the date when the debt ceiling is reached and the country risks defaulting, a seismic event which would undermine the dollar’s status as the world’s reserve currency and almost certainly see the remaining credit rating agencies strip it of its AAA rating following Standard & Poor’s downgrade in August 2011. The Nikkei 225 is now down 7% over four trading sessions, although remains up 39% in the year to date.