Japan unveiled a $100 billion effort to help companies cope witha surging yen, signaling that officials may be resigned to thecurrency remaining high.

The government will release foreign-exchange reserves to thestate-run Japan Bank for International Cooperation for funding toaid exporters and spur purchases overseas, Finance MinisterYoshihiko Noda told reporters in Tokyo today. The announcement camehours after Moody's Investors Service lowered the nation's debtrating one step to Aa3, with a stable outlook.

The yen was trading today at a level stronger than beforeofficials last intervened to weaken the currency on Aug. 4. Itsrise since the March 11 earthquake to post-World War II highs isundermining the nation's recovery after three straight quarters ofeconomic contraction, complicating the government's efforts totackle its debt burden.

“The government's message may be that businesses need to come upwith their own ways to deal with the strengthening currency, thatthey shouldn't hold their breath for intervention,” said ToshiyaYamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd.“But the reality is that the demerits of a strong yen far outweighthe merits.”

The ministry will bolster monitoring of the currency market,requiring major financial institutions to disclose tradingpositions through Sept. 30, Noda said. About 30 organizations willbe subject to the procedures, a ministry official told reporters inTokyo on condition of anonymity.

The yen's appreciation is bad for the economy and may exacerbatethe nation's fiscal woes, Thomas Byrne, a vice president atMoody's, said at a press conference in Tokyo today. He said it wasunlikely his company would take negative action on the creditrating over the next 18 months.

Amassed Reserves
Japan has amassed $1.07trillion in foreign-exchange reserves, the world's largest afterChina. The yen traded at 76.55 per dollar at 4:12 p.m. in Tokyotoday. It touched a postwar high of 75.95 on Aug. 19 in New Yorkand has been the second-best performer of ten major currenciestracked by Bloomberg over the past month.

“It does seem as though they're trying everything butintervention now,” Sean Callow, a senior currency strategist atWestpac Banking Corp. in Sydney, told Bloomberg Television. Thecase for “big scale intervention in the near term” isn't ascompelling as it was for Switzerland when that nation moved toweaken the franc, because Japan's currency is proving lessvolatile, he said.

BOJ Praise
The Bank of Japan applauded theFinance Ministry's announcement, saying in a statement that themeasures would “contribute to the stability” of currency markets.The one- year funding program through JBIC is intended to encourage“the private sector to exchange yen-denominated funds to foreigncurrencies by supporting exports by small and mid-sized companies,securing energy resources and helping Japanese companies topurchase foreign businesses,” Noda said.

The downgrade in Japan's credit grade was the first by Moody'ssince 2002 and reflects deteriorating credit quality acrossdeveloped nations from Italy to the U.S., which lost its AAA statusat Standard & Poor's this month. While the move adds to thechallenges of the next Japanese prime minister, scheduled to bepicked next week, the impact on bond yields may be limited by whatMoody's described as domestic investors' preference for governmentdebt.

Bank Downgrade
Bank units of MitsubishiUFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. andMizuho Financial Group Inc. were among lenders that had theirratings lowered one step by Moody's after the cut to thegovernment's grade.

The cost of insuring corporate and sovereign bonds in Japanagainst default increased, according to traders of credit- defaultswaps. The Markit iTraxx Japan index rose 7 basis points to 153basis points as of 12:09 p.m. in Tokyo, on course for its highestlevel since June 10, 2010, according to CMA, which is owned by CMEGroup Inc. and compiles prices quoted by dealers in the privatelynegotiated market.

Today's rating move brings Japan to the same level as China,showing the diverging paths of Asia's two biggest economies. Chinareplaced Japan as the world's No. 2 last year and Moody's has apositive outlook on its ranking.

Moody's put Japan on review in May, calling on the government tostep up efforts to narrow the budget gap. S&P lowered thenation's grade to AA-, equivalent to the current Moody's grade, inJanuary, and has the nation under review for a further cut. FitchRatings has Japan at AA- with a negative outlook.

Lowest Costs
Even with the deteriorationin its ratings, Japan has enjoyed what Moody's today called theworld's lowest nominal borrowing costs. Yields on Japan's benchmark10-year bonds rose for a third day, to 1.01 percent as of 4:11 p.m.in Tokyo at Japan Bond Trading Co., still down from 1.11 percent atthe end of last year. Noda said investors continue to have faith inthe nation's government debt market. Moody's said there were nosigns of Europe's debt woes spilling into Japan's bond market.

Japan's “funding cost advantage will be sustained byconsiderable institutional and structural strengths, which willprevail even with large budget deficits in 2011 and 2012,” Moody'ssaid. Japan relies on foreigners to buy less than 10 percent of itsdebt.

The Nikkei 225 Stock Average fell 1.1 percent at the 3 p.m.close in Tokyo. The lack of market ructions contrasts with theS&P downgrade of the U.S., which was blasted by the Obamaadministration for being influenced by faulty accounting.

S&P Cut
S&P's Aug. 5 decisionroiled global markets and boosted demand for Treasuries, sendingthe yield on the 10-year note, the benchmark for home mortgages andcar loans, to a record low 1.97 percent. The New York-basedcompany, which was blamed in an April Senate report for helpingfuel the credit crisis, was criticized by the world's mostsuccessful investor, Warren Buffett, who said the U.S. should be“quadruple-A.”

Moody's said today's decision was “prompted by large budgetdeficits and the build-up in Japanese government debt since the2009 global recession.”

Japan's public debt is projected to reach 219 percent of grossdomestic product next year even before accounting for borrowing tofund reconstruction after the March 11 earthquake, according to theOrganization for Economic Cooperation and Development.

Debt Swells
The government has amassed adebt of 943.8 trillion yen, according to the Finance Ministry,after two decades of fiscal spending to energize an economy hobbledby the collapse of an asset bubble in 1990 and lingering deflationthat's sapped private demand. The yen's advance threatens exports,a main driver of the nation's economic growth.

Prime Minister Naoto Kan's efforts to reduce Japan's debt havebeen stymied by opposition within his party to tax increases. Kanhas said he will step down on Aug. 26 if bills for renewable energyand deficit-bond funding are passed.

The International Monetary Fund said on July 19 that Japanneeded to push forward with new tax measures and limit bondissuance to pare its debt. It recommended raising the sales tax to7 percent or 8 percent in 2012 from 5 percent, then graduallyincreasing it to 15 percent over several years.

The IMF also said that outstanding government bonds could exceedtotal financial assets owned by households in five to 10 yearsbarring policy changes, suggesting the government may need to relymore on foreign investors to fund its deficits.

The government has pledged to raise the sales tax to 10 percentby the middle of the decade. The additional revenue is intended topay for social welfare for the aging population.

Japan's government plans total spending of 19 trillion yen ($248billion) over five years to rebuild after the magnitude-9 temblorand tsunami that devastated the northeast coast of Japan andtriggered the worst nuclear crisis since Chernobyl.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.