After the U S it is now Japan to be hit in the latest round of sovereign debt downgrades. Moody investor services on Wednesday declared lowering the government's credit rating. In its official announcement Moody changed the moods of the investing public, by cutting Japan's government bond rating to Aa3 from Aa2. The reason for the lowering owes to large budget deficits and the build-up in Japanese government debt, since the 2009 global recession.
The soothing news, to this otherwise grave situation is Moody said that a debt crisis was at least some years away. It said that the new outlook was stable, noting that a steady demand for Japanese bonds from domestic buyers has kept Japan's bond yields at the lowest levels anywhere globally. More than 95% of Japan's debt is held domestically, with major banks and insurers among the main holders.
The situation in Japan is similar to the one in U S. Japan is facing severe criticism over its financial condition, but its finances are in far worse shape with nearly half of the annual central government budget financed by bond issuance and the country's gross debt, now equal to more than 200% of annual GDP. Compare a U.S. debt load at an estimated 75% of GDP.
Japanese Finance Minister Yoshihiko Noda refused to comment on the issue about credit rating lowered by Moody. But firmly felt that the smooth sales of Japanese government bonds at recent auctions shows that confidence on the government, remains unshaken.
Major Japanese banks, which have large government bond holdings, were underperforming in the broader market on Wednesday after Moody’s rating. Mitsubishi UFJ FG is down 1.5% at 337 yen ($4.38), Sumitomo Mitsui FG is down 0.1% at 2,207 yen, and Mizuho FG is flat at 112 yen. The yen fell briefly, with the dollar spiking to ¥76.78 from ¥76.66 before retracing the gains.
Amid criticism of his handling of the response to the disasters, the Japanese Premier Naota Kan is expected to step down and make way for the fifth Prime Minister in six years of financial and political turbulent country. Japanese Finance Minister is the most talked about man to step into his shoes.
