By WILLIAM SPOSATO
TOKYO—Moody’s Investors Service downgraded Japan’s debt rating Wednesday, but assigned it a stable outlook and said there was little chance of a crisis in the country’s debt market any time soon.
The announcement, which came less than a week before the ruling party is due to select the sixth prime minister in the past five years, puts fresh pressure on political leaders to repair the country’s finances—by some measures the worst in the industrialized world.
Moody’s said it was cutting Japan’s government bond rating to Aa3 from Aa2, citing “large budget deficits and the build-up in Japanese government debt since the 2009 global recession.” It kept the outlook on the new rating as stable.
The move puts the Moody’s rating on par with that of other major ratings companies. Standard & Poor’s and Fitch Ratings both rate Japan’s sovereign local currency debt double-A-minus, but with a negative outlook.
Like the U.S., Japan is facing increasing criticism over its financial situation. But Japan’s finances are in far worse shape, with nearly half of the annual central government budget financed by bond issuance, and gross debt now equal to more than 200% of gross domestic product.
More at the link. While the article noted that Japan’s sovereign debt is more than twice it’s GDP, a much higher ratio than the US’ 75% of GDP, more than 95% of Japan’s debt is held domestically, with major banks and insurers among the main holders, while 46% of the US’ sovereign debt is held by foreigners. That means while Japan’s government faces a much more serious problem in attempting to repay its debt, as it does repay, almost all of those payments go back into the Japanese economy. The United States should have less problem repaying our debt, but as we make debt service payments, far too much leaves our shores. And while Japan is financing almost half of its government spending through credit, we’re doing so to the tune of 40%.
Translation: while Japan’s circumstances are different from our own, the decision by Moody’s to downgrade Japan’s sovereign debt — and both Standard & Poor’s and Fitch’s had previously downgraded Japan’s credit rating — sure makes S&P’s decision to downgrade the United States’ sovereign debt seem reasonable.
Why? Perhaps it’s a less than quantifiable point, but while both the United States and Japan have never missed a payment, neither nation shows the least inclination to stop borrowing and start paying off its debts.
An explanation of Moody’s rankings:
Long-Term Obligation Ratings
Moody’s long-term ratings are opinions of the relative credit risk of financial obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings use Moody’s Global Scale and reflect both the likelihood of default and any financial loss suffered in the event of default.