Thursday, January 27, 2011

S&P Cut Japan's Credit Rating

S&P reduced the credit rating of Japan. The sovereign debt of Japan stands at about 200% of GDP. In comparison the US public debt is about 96% of GDP. The full story can be found at the Financial Times:


Standard & Poor’s has cut Japan’s sovereign debt rating for the first time since 2002, saying the government lacks a “coherent strategy” for dealing with its soaring state debt.

The cut, which puts S&P’s domestic and foreign ratings for Japan on a par with those of China, underscores concerns about the long-term fiscal prospects of the world’s third-largest economy.

While there are no signs that Japan faces an immediate debt crisis, and government bond yields remain very low by international standards, worries have been growing about the state’s ability to rein in a gross debt burden expected to soar above 200 per cent of gross domestic product this year. . . .

. . . . The cost of insuring Japan’s sovereign debt against default widened 4 basis points to close at 84 basis points in Tokyo, according to Markit. That is still some way off the record of 120 basis points. The downgrade generated fresh concerns in Europe where the spreads on Italian and Belgian sovereign CDS widened, Markit said.

The downgrade means S&P has a lower rating on Japan’s long-term debt than Moody’s, which currently has a rating of Aa2.

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