Standard and Poor’s (S&P) said Japanese Prime Minister Yoshihiko Noda’s administration has not made progress in tackling the public debt burden, an indication the ratings agency could be preparing to lower the nation’s sovereign grade.
“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa director of sovereign ratings at S&P in Singapore, said in an interview. Asked if that means he is closer to cutting Japan, he said it “may be right in saying that we’re closer to a downgrade, but the deterioration has been gradual so far, and it’s not like we’re going to move today.”
A reduction in S&P’s “AA-” rating would be a setback for Noda, who took office in September and has pledged to both steady Japan’s finances and implement reconstruction from the earthquake and tsunami in March. It is unrealistic for Japan to think it can escape the debt woes that have engulfed other nations unless it can control its finances, Ogawa said.
While Japan has enjoyed borrowing costs at global lows for its debt, the IMF said in a report released on its Web site on Wednesday that there is a risk of a “sudden spike” in yields that could make the debt level unsustainable.
S&P has had Japan on a negative outlook since April. Ogawa said the nation needs a “comprehensive approach” to containing its debt burden, which the government projects will exceed ￥1 quadrillion (US$13 trillion) in the year through March as the nation pays for reconstruction.
The yen pared gains after Ogawa’s remarks and was trading at ￥77.15 against the US dollar as of 3:23pm in Tokyo yesterday. Yields on Japan’s benchmark 10-year government bond rose to as high as 0.98 percent yesterday from the previous close of 0.965 percent, before the nation’s markets shut on Wednesday for a holiday. The Nikkei 225 Stock Average dropped 1.8 percent to 8,165.18, its lowest close since March 2009.
“The events in Europe show us that when you lose market confidence at some point, the situation deteriorates fast,” Ogawa said. “Politicians need to act with the understanding that they are running out of time” to fix the nation’s finances. “If you don’t act early, it will become even more difficult” to maintain market trust, he said.
Japan’s lower house of parliament yesterday approved legislation that would add an additional 2.1 percent levy to an individual’s annual payment. Lawmakers revised the government’s proposal to extend the period of the measure from 10 years to 25 years, to help pay for reconstruction. The measure will take effect in 2013.
“Just because this passes does not mean that it’s positive for the public finances,” Ogawa said. “Politicians are squabbling over the minute details, while avoiding what’s most important.”
While Japan’s policymakers have signaled they will double the nation’s sales tax from 5 percent by about 2015, a bill has yet to be enacted.
Moody’s Investors Service cut the nation’s debt rating by one step to “Aa3” on Aug. 24. S&P lowered Japan to “AA-” in January and Fitch Ratings also has Japan at “AA-,” with a negative outlook.
UNCERTAINTY: Investors remain worried that trade negotiations with Washington could go poorly, given Trump’s inconsistency on tariffs in his second term, experts said The consumer confidence index this month fell for a ninth consecutive month to its lowest level in 13 months, as global trade uncertainties and tariff risks cloud Taiwan’s economic outlook, a survey released yesterday by National Central University found. The biggest decline came from the timing for stock investments, which plunged 11.82 points to 26.82, underscoring bleak investor confidence, it said. “Although the TAIEX reclaimed the 21,000-point mark after the US and China agreed to bury the hatchet for 90 days, investors remain worried that the situation would turn sour later,” said Dachrahn Wu (吳大任), director of the university’s Research Center for
Alchip Technologies Ltd (世芯), an application-specific integrated circuit (ASIC) designer specializing in artificial-intelligence (AI) chips, yesterday said that small-volume production of 3-nanometer (nm) chips for a key customer is on track to start by the end of this year, dismissing speculation about delays in producing advanced chips. As Alchip is transitioning from 7-nanometer and 5-nanometer process technology to 3 nanometers, investors and shareholders have been closely monitoring whether the company is navigating through such transition smoothly. “We are proceeding well in [building] this generation [of chips]. It appears to me that no revision will be required. We have achieved success in designing
PROJECTION: KGI Financial said that based on its foreign exchange exposure, a NT$0.1 increase in the New Taiwan dollar would negatively impact it by about NT$1.7 billion KGI Financial Holding Co (凱基金控) yesterday said its life insurance arm has increased hedging and adopted other moves to curb the impact of the local currency’s appreciation on its profitability. “It is difficult to accurately depict the hedging costs, which might vary from 7 percent to 40 percent in a single day,” KGI Life Insurance Co (凱基人壽) told an investors’ conference in Taipei. KGI Life, which underpinned 66 percent of the group’s total net income last year, has elevated hedging to 55 to 60 percent, while using a basket of currencies to manage currency volatility, the insurer said. As different
Taiwanese insurers are facing difficult questions about the damage of recent swings in the New Taiwan dollar. Regulators might have a partial solution: letting firms change how they calculate the value of foreign currency assets. The Financial Supervisory Commission (FSC) is considering allowing insurers to use six-month average exchange rates when they calculate risk-based capital in their semiannual reports, a shift from the current system where insurers use exchange rates on the final day of reporting. The change could ease pressure on the US$1.2 trillion insurance sector, whose huge exposure to foreign assets came into the spotlight earlier this month after a
RSS