Currency markets are reacting to the possibility of a  U.S. debt default, with the Japanese yen and Swiss franc exchange traded funds (ETFs) making gains while the debt debate continues. Does this mean markets have already priced in some sort of U.S. default?

The CurrencyShares Japanese Yen Trust (NYSEArca: FXY) is up more than 4% for the past month; and up nearly 2% for the past two weeks. The strength in the yen is signaling Japan’s finance ministry to warn Tokyo that further upside in the yen is not a favorable move.

Leiko Kihara for Reuters reports the U.S. dollar slid to a low of 76.25 yen based on concerns about the default or downgrade of the U.S. credit market. [ETF Spotlight: CurrencyShares Japanese Yen (FXY).]

“We have only been able to say that we are watching market moves carefully. But our stance is clear. We will take decisive action against excessive exchange rate volatility. I’d like to carefully examine how long we can leave current (exchange-rate) moves unattended,” said Japan’s Finance Minister Yoshihiko Noda, on Reuters.

“The yens rise is not driven by domestic factors but by changes in global money flows…The changes are occurring for a limited time period until August 2, so I hope the yens rise will prove temporary,” said Economics Minister Kaoru Yosano for Reuters. [Gain Exposure to Currency Movements with ETFs.]

Also of note, the euro continues to feel pressure as the concerns over the euro zone crisis remain elevated. This has helped fuel the strength of the Swiss franc. Blue-chip companies in Switzerland are warning that the stronger currency has taken a toll on results, and that an intervention may be the next step, reports Anita Greil and John Revill for The Wall Street Journal. [Swiss Franc Hits Fresh Peak On Debt Jitters.]

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