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Moody’s Warns on Japan’s Fiscal Discipline Under Kan By Keiko Ujikane
Jan. 13 (Bloomberg) -- The replacement of Japan’s finance minister four months into the government’s term increases concern about the commitment to contain the world’s largest public debt burden, Moody’s Investors Service said.
“Japan’s fiscal strategy unknowns deepen” with the appointment of Naoto Kan last week, Thomas Byrne, senior vice president of Moody’s in Singapore, wrote in a note yesterday.
Byrne’s stance contrasts with analysts at Goldman Sachs Group Inc. and Morgan Stanley, who said Kan has indicated a willingness to repair Japan’s finances. The 63-year-old deputy prime minister last week replaced Hirohisa Fujii to become the country’s sixth finance chief in 18 months, tasked with preventing a relapse into a recession while containing the debt.
“The revolving door for leadership at the Ministry of Finance does not engender confidence that Japan will put together a credible fiscal strategy to reduce deficits and stabilize the massive government debt overhang in the medium term,” Byrne said.
Kan said on Jan. 7 that it will be a “challenge” to maintain fiscal discipline this year and he will try to secure funds to fulfill the ruling Democratic Party of Japan’s pledges without exacerbating the debt burden.
The role change also “raises doubts” over the administration’s commitment to a 44 trillion yen ($480 billion) cap on new Japanese government bond sales for next fiscal year, Byrne said. Kan may “seek to further boost fiscal stimulus to an economy hamstrung by renewed and stubborn deflationary pressures,” he said.
Debt Rating
Moody’s rates Japan’s debt at Aa2, the third-highest investment grade, with a stable outlook. Byrne said the nation’s sovereign outlook in the medium term depends on “stronger economic growth and a return to a gradual course of deficit reduction and debt containment.”
“While we believe the domestic market will readily absorb even the record level of JGB issuance this year, strains on JGB yields could emerge in outlying years,” Byrne said. Local residents held 94 percent of Japanese government bonds as of June, Finance Ministry data show.
Yields on the benchmark 10-year note fell 1 basis point to 1.35 percent in Tokyo yesterday. They reached a two-month high of 1.365 percent on Jan. 8, the day after Kan was appointed.
Record Budget
Fujii, 77, resigned last week after his health deteriorated following weeks of negotiations with ministers over next fiscal year’s budget, which was unveiled by Prime Minister Yukio Hatoyama on Dec. 25. Kan, who will stay as deputy leader and minister of economic and fiscal policy, will try to get lawmakers’ approval for the record 92.3 trillion yen proposal when parliament convenes later this month.
Morgan Stanley strategist Atsushi Ito said investors have “misunderstood” Kan’s remarks since his appointment and his policy isn’t based on increasing spending to spur the economy.
“He’s not a fiscal expansionist,” said Tokyo-based Ito. “He wants to achieve a policy mix of fiscal austerity, monetary accommodation and a weaker yen.”
The finance minister also indicated last week that he’s open to discussing an increase in the country’s 5 percent sales tax once wasteful spending has been eliminated. His remarks signal the government may start “seriously debating” an increase in the levy as early as next year, even while it risks suppressing consumer spending, said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs.
Japan’s debt is projected to be 246 percent of gross domestic product in 2014, compared with 108 percent for the U.S. and 89 percent for Germany, according to an International Monetary Fund report released in November.
Moody’s Warns on Japan’s Fiscal Discipline Under Kan By Keiko Ujikane
Jan. 13 (Bloomberg) -- The replacement of Japan’s finance minister four months into the government’s term increases concern about the commitment to contain the world’s largest public debt burden, Moody’s Investors Service said.
“Japan’s fiscal strategy unknowns deepen” with the appointment of Naoto Kan last week, Thomas Byrne, senior vice president of Moody’s in Singapore, wrote in a note yesterday.
Byrne’s stance contrasts with analysts at Goldman Sachs Group Inc. and Morgan Stanley, who said Kan has indicated a willingness to repair Japan’s finances. The 63-year-old deputy prime minister last week replaced Hirohisa Fujii to become the country’s sixth finance chief in 18 months, tasked with preventing a relapse into a recession while containing the debt.
“The revolving door for leadership at the Ministry of Finance does not engender confidence that Japan will put together a credible fiscal strategy to reduce deficits and stabilize the massive government debt overhang in the medium term,” Byrne said.
Kan said on Jan. 7 that it will be a “challenge” to maintain fiscal discipline this year and he will try to secure funds to fulfill the ruling Democratic Party of Japan’s pledges without exacerbating the debt burden.
The role change also “raises doubts” over the administration’s commitment to a 44 trillion yen ($480 billion) cap on new Japanese government bond sales for next fiscal year, Byrne said. Kan may “seek to further boost fiscal stimulus to an economy hamstrung by renewed and stubborn deflationary pressures,” he said.
Debt Rating
Moody’s rates Japan’s debt at Aa2, the third-highest investment grade, with a stable outlook. Byrne said the nation’s sovereign outlook in the medium term depends on “stronger economic growth and a return to a gradual course of deficit reduction and debt containment.”
“While we believe the domestic market will readily absorb even the record level of JGB issuance this year, strains on JGB yields could emerge in outlying years,” Byrne said. Local residents held 94 percent of Japanese government bonds as of June, Finance Ministry data show.
Yields on the benchmark 10-year note fell 1 basis point to 1.35 percent in Tokyo yesterday. They reached a two-month high of 1.365 percent on Jan. 8, the day after Kan was appointed.
Record Budget
Fujii, 77, resigned last week after his health deteriorated following weeks of negotiations with ministers over next fiscal year’s budget, which was unveiled by Prime Minister Yukio Hatoyama on Dec. 25. Kan, who will stay as deputy leader and minister of economic and fiscal policy, will try to get lawmakers’ approval for the record 92.3 trillion yen proposal when parliament convenes later this month.
Morgan Stanley strategist Atsushi Ito said investors have “misunderstood” Kan’s remarks since his appointment and his policy isn’t based on increasing spending to spur the economy.
“He’s not a fiscal expansionist,” said Tokyo-based Ito. “He wants to achieve a policy mix of fiscal austerity, monetary accommodation and a weaker yen.”
The finance minister also indicated last week that he’s open to discussing an increase in the country’s 5 percent sales tax once wasteful spending has been eliminated. His remarks signal the government may start “seriously debating” an increase in the levy as early as next year, even while it risks suppressing consumer spending, said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs.
Japan’s debt is projected to be 246 percent of gross domestic product in 2014, compared with 108 percent for the U.S. and 89 percent for Germany, according to an International Monetary Fund report released in November.