Moody's lowers Japanese government debt rating - The Citizen Daily

Tokyo. Moody's Investors Service yesterday downgraded the government of Japan's rating to Aa3 from Aa2, citing large budget deficits and the build-up in the Japanese government debt since the 2009 global recession.

"Over the past five years, frequent changes in administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies," the ratings agency said.

It also said the twin disasters in March and the ongoing crisis at the Fukushima Daiichi Nuclear Power plant have delayed recovery from the 2009 global recession and added to deflationary conditions.

The cut in government debt rating came at a time when Japan is preparing its sixth prime minister in five years. Prime Minister Naoto Kan said on Tuesday that he expected to see the next leader on August 30.

Earlier this month, the Japanese government downgraded its economic growth forecast for fiscal 2011 to 0.5 per cent, one percentage point less than its previous forecast, due to the adverse affects of the March 11 double disasters.

The Cabinet Office had originally predicted the economy would grow 1.5 per cent in actual terms for the current fiscal year ending next March.

However, Moody's said the outlook for the country is stable. "Support for the stable outlook comes from the undiminished home bias of Japanese investors and their preference for government bonds, which allows the government's fiscal deficits to be funded at the lowest nominal rates globally," it said.

The dollar quickly came off an intraday high of 76.88 yen hit after Moody's cut its rating on Japan's debt and as its crosses came under broad pressure after S&P futures SPc1 fell 0.8 per cent and gold gained 0.9 per cent on renewed risk aversion.

"The scheme treats the symptoms not the underlying cause," said Todd Elmer, currency strategist at Citi in Singapore.

"So it's not going to have any impact whatsoever in supporting dollar/yen, and given that there have been some expectations for stronger measures ... I wouldn't be surprised if dollar/yen traded lower on the day," he said.
Japan also said it would ask major financial firms to report on FX positions held by dealers for the period to the end of September. The potential impact from this is hard to gauge at this point, however, since it is unclear what action Japanese authorities would take with such information, traders said.

Moody's downgraded Japan by one notch to Aa3, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies. Still, such cuts have had scant effect on yields as the vast bulk of Japanese debt is owned by the Japanese themselves. (Xinhua) 

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