Fitch downgraded US Treasuries by one notch from AAA to AA+. Initially, the impact of the downgrade was interpreted as limited, and the dollar/yen exchange rate on the foreign exchange market returned to around 143.35 yen, but as the downgrade in Japanese equities accelerated, the dollar/yen also lost value sharply in the second half of the day, selling off to a low of 142.24 yen.

When Standard and Poor’s downgraded US Treasuries in 2011, the US stock market’s NY Dow fell 5.5% the following day. Considering the recent high of USD 12739 to the low of USD 10404, that was a drop of 18%. In hindsight, the drop was insignificant.

However, given that Standard and Poor’s kept US Treasuries on “negative watch” at the time, this time it is not as negative as it was then, and in the end, the drop at that time was, in hindsight
It’s just noise. This time, too, it will end up as mere noise, but US long-term interest rates have risen, possibly as a result of the downgrade of US Treasuries, and Japanese equities have fallen sharply. The Bank of Japan’s temporary buying operation of JGBs caused the dollar-yen exchange rate to rise temporarily to around 143.89 yen, but it has since fallen sharply, as if the ladder had been removed, showing the instability of the market.

We would like to see a reaction from the US stock market. If it ends up being bought without incident, the risk-on market will return. But if not, a nervous adjustment market may continue.

The 10-year US interest rate has risen a little unbelievably to 4.14% and the 30-year US to 4.24%. Is this because of the downgrade of US Treasuries, or because new issuance of government bonds is becoming larger? Or is it because Japan is moving towards monetary normalisation, which is expected to reduce the inflow of funds into the US bond market?

In the near term, we want to see to what extent the dollar can fall. And we would like to wait for a buying opportunity for the dollar.