Standard & Poor’s (S&P) yesterday cast doubt on Japanese Prime Minister Shinzo Abe’s ability to repair Japan’s tattered finances less than two weeks away from a snap election, after Moody’s downgraded the nation’s sovereign debt rating.
Abe’s decision to delay a sales tax increase by 18 months might help the economy in the short term, but there is still no guarantee taxes are going to rise because the political dynamic could change after the election, S&P director of sovereign ratings Takahira Ogawa said.
The growing reservations about Japan come at an awkward time for Abe as he has called an election on Dec. 14 that has become a vote on whether he has done enough to fundamentally improve the prospects for growth.
“I might be wrong, but judging by history I’m not optimistic about getting a detailed fiscal plan,” Ogawa said. “In addition, if the government fails to implement its plan, then it doesn’t make any sense.”
S&P has an “AA-” rating on Japan, which is three notches from the top rating of “AAA.”
S&P’s rating on Japan has a negative outlook, meaning a downgrade is possible.
Ogawa declined to confirm if he was reviewing Japan’s current rating for a possible downgrade.
Moody’s Investors Service on Monday downgraded Japan to “A1,” one notch below S&P’s rating, citing rising uncertainty over the nation’s ability to hit its deficit-reduction goal.
Abe’s decision to delay a sales tax hike to 10 percent from 8 percent might prove popular with voters, but some economists say it is now impossible to eliminate the primary budget deficit in fiscal 2020, an important fiscal consolidation target.
The primary budget deficit excludes debt servicing costs and income from bond sales.
Ogawa worries the plan, like many in the past, would lack specific steps to cut spending and boost revenues needed to shrink Japan’s public debt burden, which is the worst in the world at more than twice the size of its US$5 trillion economy.
Even without the delay in the sales tax hike, the government is not doing enough to correct the structural problems that make it difficult to reduce debt, such as low growth, a shrinking population and rising welfare spending, Ogawa said.
“As long as Japan’s economy doesn’t grow, fiscal problems will not be solved,” he said. “There is still a lot more to do on the growth side.”
S&P’s sobering assessment and Moody’s downgrade are a negative for Abe, but his ruling coalition is expected to keep its lower house majority after the vote as the opposition is in disarray.
Abe’s party could still lose some seats, so analysts are set to focus on the extent of the losses and what steps Abe takes to revitalize his economic agenda.
Some economists are said to be concerned the Bank of Japan’s purchases of government debt via its quantitative easing could make the government complacent on fiscal policy because yields are kept very low, or in some cases even go into negative territory.
NOTABLE SHIFT: By 2030, 50% of all laptops would be assembled in Southeast Asia, while Taiwan would still mostly focus on research and development, a report said Global laptop and desktop computer supply chains are expected to shift significantly away from China in the next 10 years, a Market Intelligence & Consulting Institute (MIC, 產業情報研究所) report said. By 2030, only 40 percent of global laptop production would remain in China, said the report, which was released on Thursday. “The reshuffling of the global supply chain will be one of the most important trends in the next 10 years,” the institute said in the report. “In the long run, key component makers will follow laptop assemblers in moving out of China.” The Taipei-based institute predicted most key component makers
NO VIRUS BLUES: A SEMI Taiwan official said that the virus does not slow down the global semiconductor industry’s investment in manufacturing equipment The production value of the nation’s semiconductor industry is expected to grow 16.7 percent this year from last year, outpacing the global industry’s 3.3 percent growth, industry association SEMI said yesterday. That would help Taiwan safeguard its second spot in the global semiconductor market with a production value of more than NT$3 trillion (US$102.73 billion), SEMI Taiwan president Terry Tsao (曹世綸) told a media briefing in Taipei for the Semicon Taiwan trade show beginning today. The global semiconductor industry’s production value is expected to increase to US$426 billion this year, SEMI said. In terms of semiconductor equipment investment, equipment billings from Taiwanese firms
Intel Corp has received licenses from US authorities to continue supplying certain products to Huawei Technologies Co (華為), a company spokesman said yesterday. Washington has been pushing governments around to world to squeeze out Huawei, saying that the telecom giant would hand data to Beijing for espionage. From Monday last week, new curbs have barred US companies from supplying or servicing Huawei. This week, the state-backed China Securities Journal reported that Intel had received permission to supply Huawei. China’s Semiconductor Manufacturing International Corp (SMIC, 中芯國際), which uses US-origin equipment to make chips for Huawei and other companies, last week confirmed that it had sought
Merck Group Taiwan yesterday said that it plans to invest substantially on expanding its fab in Kaohsiung’s Lujhu District (路竹) to better serve its local customers, including Taiwan Semiconductor Manufacturing Co (TSMC, 台積電). The company said it plans to expand its production space by 50 percent in the next five years and its workforce by about 40 percent, Merck Group Taiwan managing director Dick Hsieh (謝志宏) told a media briefing in Taipei. Hsieh declined to disclose investment details, but said that the latest investment would exceed the total amount Merck has invested in Taiwan over the past few years. Those investments would be