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Japan Downgraded By Fitch

May 23rd, 2012 Comments off

Fitch, one of the 3 major credit ratings agencies, has lowered its rating of Japanese sovereign debt to A-plus, with a negative outlook. Japan’s gross sovereign debt is nearly 240 percent of its GDP. This is the highest correlation of public debt to GDP of any major advanced economy.

There are some factors mitigating the massive Japanese government debt bubble. It is a nation of savers, which provided the sovereign with a domestic pool of cheap credit. Japan has large foreign currency reserves, and significant  overseas assts (including hundreds of billions of dollars of U.S. Treasuries). However, the demographic trend in Japan is ominous in terms of future sources of cheap credit. The two decade  old “L” shape recession, fiscal and political stagnation, and the triple disasters last year involving the earthquake, tsunami and nuclear meltdown further increased already massive deficit spending by Tokyo.  One must conclude, therefore, that Fitch was not being overly pessimistic in describing Japan’s future fiscal outlook as being negative.

                 

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