Moody's Investors Service on Monday said that Japan's struggle to reverse the yen appreciation is a credit negative for its fragile recovery.

In its Weekly Credit Outlook, Moody's senior vice president Tom Byrne said even the ample resources made available to the Japanese government will not be enough to forestall fundamental market pressures in the global currency markets.

Japanese authorities intervened in the currency market last Thursday for the first time since March 18 to stem the yen's rise as it hit a fresh record high against the dollar.

Moody's noted that the Japanese government succeeded in pushing the yen to 80.0 against the dollar from 77.1 immediately before the yen-selling intervention began. Meanwhile, the Bank of Japan complemented that by expanding its asset purchase program by 10 trillion yen (around 2 percent of GDP) to 50 trillion yen.

The coordinated actions initially pushed the yen lower versus the dollar. However, by the close-of-business Friday, the yen regained most of its lost value and stood at 78.5 versus the dollar.

The yen's strength has eroded the competitiveness of Japan's exports and hampered the economy's ability to sustain its recovery from the 2009 global recession, Moody's noted. Moreover, without robust export performance, the strength of the post-earthquake recovery will be jeopardized.

"Unfortunately for the policymakers in Tokyo, while Japan's external strengths (a current account surplus and very large net asset international investment position) insulate it from market contagion, they attract capital seeking a safe haven from the turmoil and uncertainties roiling the euro area and U.S.," Tom Byrne added.

He also noted that Japan's ability to regain firmer footing on the path of economic recovery will require more than decisive technical policy actions, but also serious long-term reforms out of the Diet, which unfortunately, is currently embroiled in factional infighting.

RTTNews