This page has been archived and commenting is disabled.

About That Japanese Downgrade

Tyler Durden's picture




 

While we no longer live in a world in which debt matters - because central banks will just monetize it in their ongoing and no longer covert effort to reflate the final bubble - and thus debt ratings are an irrelevant anachronism from a bygone era, we can't help but recall a certain statement by S&P from September of last year, in which the rating agency reminded everyone just why Japan has to proceed with both its first sales tax hike from 5% to 8%, (which, together with weather, has now been blamed on Japan's shocking quadruple-dip recession), but also the follow up from 8% to 10%, which as we now know, has been delayed indefinitely, and which was supposed to prefund welfare spending for Japan's demographic disaster which with every passing day gets closer and closer.

This is what S&P said:

Japan could face a debt downgrade if it does not shrink its budget deficit, which is unlikely to return to primary balance by a targeted date of fiscal 2020, even if the prime minister's policies go well, a senior official of Standard & Poor's said. Japan's outstanding debt burden is the highest in the world at 1,000 trillion yen, or more than twice the size of its economy.

 

Standard & Poor's remains doubtful about the scale of Japanese welfare reform and how much spending can be cut, Takahira Ogawa, director of sovereign ratings at the agency, told reporters on Friday.

 

Prime Minister Shinzo Abe is set to announce around October 1 that he will raise sales tax to 8 percent from 5 percent in April to pay for welfare spending, but the hike may not aid public finances because the government is compiling stimulus measures to offset the blow, Ogawa said. "The government is taking about raising the sales tax by 3 percentage points, but the stimulus spending is worth around 2 percentage points," Ogawa said. "In the end a 1 percent point hike may not have much of an impact."

Now that the remainder of the sales tax hike is indefinitely postponed what is Japan doing instead, in addition to monetizing all of its debt issuance of course? It is about to inject another JPY3 trillion stimulus, which means that not only will Japan's deficit will not shrink but it will in fact grow as a result of the incremental spending!

And then there is the hollow CTRL-C/CTRL-V echo chamber which because its has no idea what it is talking about (or has any recollection of facts from the distant 2013) is blaming the Japanese quadruple dip recession on, don't laugh, austerity, when quite clearly what happened as part of Abenomics was this: "Japan's government has finalized a $50-billion stimulus package that will pave the way for a scheduled increase in the sales tax. The scheme will include some tax breaks to companies that invest in new plants or equipment, expand tax breaks for residential mortgages and some public works for reconstruction after the March 2011 earthquake and nuclear disaster."

Looks like the non-austerity spending did not quite offset impact of the tax hike.

And guess what: the sales tax hike was more than offset by increased spending:

Japan's politicians want to stimulate the economy to make sure the sales tax hike doesn't derail a recovery from a recession last year and delay an escape from deflation. But stimulus spending is offsetting much of the benefit to government revenues from the sales tax hike, according to Ogawa.

More complaints from S&P from over a year ago:

The government's efforts to reform welfare spending, the biggest drag on the state budget due to a rapidly ageing population, do not go far enough to ensure the big spending cuts needed to lower outstanding debt, Ogawa said.

 

Japan is unlikely to meet its target of eliminating the primary budget deficit, which excludes debt service and income from debt sales, by fiscal 2020, so Abe will have to find further ways to cut spending, Ogawa added.

 

The agency 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.

And now that Japan has clearly given up on pretending it cares about its budget ever again balancing, or its fiscal situation and is rushing headlong into the Keynesian abyss, we are holding out breath for S&P to follow through on its threat and to downgrade the land of the setting sun.

Ironically, Abe would be grateful: after all Japan hopes more "investors" dump bonds and buy stocks in one final liquidity supernova explosion. An S&P downgrade may be just the catalyst for this "virtuous" great rotation.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 11/18/2014 - 15:26 | 5462060 Bay of Pigs
Bay of Pigs's picture

By 2020?

LOL....when Pigs Fly!!!! Oink!

Tue, 11/18/2014 - 15:33 | 5462090 Aknownymouse
Aknownymouse's picture

Does the market hit 2250 today on the 3:30 ramp?

Tue, 11/18/2014 - 15:48 | 5462131 knukles
knukles's picture

Get this!

Islamists to co-opt the Ferguson Riots.

http://www.foxnews.com/us/2014/11/18/muslim-groups-seek-to-co-opt-fergus...

Don't matter one iota, it's gonna be one big ass grand shit show.
I love it when race relations come together.

Tue, 11/18/2014 - 15:32 | 5462066 Mercury
Mercury's picture

...Japan's demographic disaster which with every passing day gets closer and closer.


An age-related demographic disaster is temporary. An immigration related demographic disaster is more or less forever.

Japan rather frowns on any and all immigration.

Tue, 11/18/2014 - 15:48 | 5462137 knukles
knukles's picture

They don't even particularly like tourists.
Gracious on the outside.....

Tue, 11/18/2014 - 18:30 | 5462753 Jumbotron
Jumbotron's picture

Japan's demographic disaster which with every passing day gets closer and closer.


An age-related demographic disaster is temporary. An immigration related demographic disaster is more or less forever.

Japan rather frowns on any and all immigration.

 

Japan has been on the forefront of robots for decades.  They just have to hang on until most of the old farts die.....keep the immigrants to a minimum and then release the robots into the workforce.  Problem solved.

And it's coming from China as well......to a retail shop, a resteraunt, a cruise ship, a fast food joint, a hospital, a factory, a shipping company, a trucking company, a loading dock, etc....etc.....to an American city near you.

Brush up on C, C++, JAVA and Python programming.  Also mechanical engineering. 

Tue, 11/18/2014 - 21:40 | 5463260 flapdoodle
flapdoodle's picture

Japan *was* at the forefront of robotics ten years ago. The Europeans, South Koreans and Chinese are almost caught up... the problem is that the big zaibatsu are scelerotic (and even in trouble financially) while the chaebols in South Korea for example are at the top of their game.

The cheaper yen won't help the Japanese economy enough because the rest of Asia will devalue as well, and the cat is already out of the bag - the rest of the world knows how to manufacture stuff almost as well as the Japanese, but alot cheaper. Its going to be very tough (read, impossible) for Japan to regain market share in LED TVs against the likes of Samsung, for example.

Japanese racism has taken a heavy toll on Japanese innovation IMHO. Japan has fallen into a rut, and I don't see how it will get out. It was comfortable before Fukushima, but now it may be fatal. Picking a fight with Chinese is not likely to help very much.

Ironically, the Japanese and Koreans are racially closely related - if Japan had opened up to the Koreans more, their demographics would probably be alot better these days, but historically the Japanese have looked down own the Koreans as almost as inferior as everyone else...

Tue, 11/18/2014 - 15:29 | 5462069 i_call_you_my_base
i_call_you_my_base's picture

See, you just don't understand austerity in modern economists' terms. If you pile on debt at a rate of $500 billion, you could have piled it on at $1 trillion. Only piling on $500 billion is being austere.

Tue, 11/18/2014 - 15:50 | 5462143 knukles
knukles's picture

Paul!  Paul?  Is that you, Kruggies? 

Tue, 11/18/2014 - 15:31 | 5462073 Calmyourself
Calmyourself's picture

dup, I'm not the only one..

Tue, 11/18/2014 - 15:34 | 5462086 Mr Pink
Mr Pink's picture

Damn double posts!

Tue, 11/18/2014 - 15:33 | 5462087 Mr Pink
Mr Pink's picture

Damn double posts!

Tue, 11/18/2014 - 15:32 | 5462079 AdvancingTime
AdvancingTime's picture

The moment the Japaneses stock market fails to rise enough to offset the value of a falling yen or inflation we will see a tsunami of money fleeing Japan. This will constitute the end of the line for those left holding both JGBs and the yen.

This has been a long time coming and I contend the cross-border flow of money leaving Japan is why some stock markets have remained so resilient . When Japan crumbles it will be felt across the world. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/05/japan-sliding-towards-abyss.html

Tue, 11/18/2014 - 15:47 | 5462129 Bell's 2 hearted
Bell's 2 hearted's picture

i doubt the game is anywhere near over

 

don't rule out other mercantile countries undercutting japan on currency valuation

 

hussman thinks yen 85 possible ... don't know about that ... but i can see a HUGE short squeeze (the boat is tipping with those seeing 150) if another country(s) responds 

Tue, 11/18/2014 - 15:31 | 5462081 jacship
jacship's picture

The Presses are running so hard, we may have another melt-down.

abe- Fuked

Tue, 11/18/2014 - 15:35 | 5462091 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Japan will have gone abeshit by 2020.

Tue, 11/18/2014 - 15:36 | 5462094 FreeShitter
FreeShitter's picture

as most of the world with it.

Tue, 11/18/2014 - 15:36 | 5462093 Bell's 2 hearted
Bell's 2 hearted's picture

ZH didn't mention one tidbit

 

Geithner attacked S&P after US debt downgrade

 

S&P might decide (not?)"screw it" and not rock the boat

Tue, 11/18/2014 - 15:37 | 5462100 i_call_you_my_base
i_call_you_my_base's picture

Was thinking the same. They are cowards, which in turn makes them irrelevant.

Tue, 11/18/2014 - 15:48 | 5462136 LawsofPhysics
LawsofPhysics's picture

"They all are criminals and traitors to the constitution" --  fixed.  Death is the only appropriate response.

Tue, 11/18/2014 - 17:50 | 5462607 TheSecondLaw
TheSecondLaw's picture

Good point. It's going to be interesting to see which way the wind blows on this one.  The problem is there is so much bloody scheming going on behind the scenes, it's hard even to ascribe a probability to which CB governor arranged what with whom to effect this or that outcome.

Tue, 11/18/2014 - 15:35 | 5462097 Peter Pan
Peter Pan's picture

Japan is on life support (printing press) but because the patient is shitting himself it is taken as a sign of life by the idiots on the outside looking in.

Tue, 11/18/2014 - 15:39 | 5462102 Sudden Debt
Sudden Debt's picture

The more expensive life gets, the lesser kids people have and the worse the demogrphics get.

It's pretty clear here in Europe also and yet... We continue doing what we know is bad.

Tue, 11/18/2014 - 15:40 | 5462107 Bell's 2 hearted
Bell's 2 hearted's picture

they (and anyone else) can print all they want

 

BUT no one is writing down debt ... interest is still being paid ... at japan's debt level (even with low interest rate) interest paid will really start eating into the budget as deficits blossom

Tue, 11/18/2014 - 15:46 | 5462126 LawsofPhysics
LawsofPhysics's picture

In a nutshell, debt only matters once all those paper claims on real assets are "called in"...

same as it ever was...

Tue, 11/18/2014 - 16:01 | 5462176 Ulterior
Ulterior's picture

I have a stupid question, where do they spend all that money? They dont look fat. except those sumo guys

Tue, 11/18/2014 - 18:12 | 5462691 Irishcyclist
Irishcyclist's picture

It's not a stupid question at all.

By 1999, 10% of all annual Japanese sovereign borrowing was spent on "publicly funded works". Japan was borrowing in order to spend on huge public works projects.

Many of these projects provided little or no return on capital invested (Japan went through a phase of concreting huge areas of forestry, for example).

 

God knows what % of annual Japanese sovereign borrowing is spent on public works these days.

 

Tue, 11/18/2014 - 16:25 | 5462250 yogibear
yogibear's picture

Japan will join the ranks of Zimbabwe and Weimar Republic in the history books. The US follows Japan's lead a bit later.

Tue, 11/18/2014 - 17:15 | 5462463 Dre4dwolf
Dre4dwolf's picture

Japan is falling on its sword to prop up the USD

 

 

It's hard to get banks to take your stuff as collateral when its all irradiated.

Tue, 11/18/2014 - 18:09 | 5462673 Johnny_is_alrea...
Johnny_is_already_taken's picture

8% sales tax ???? WTF ???

Most Europe has 20-25% sales taxes !!! Get used to it bitchaz !

Tue, 11/18/2014 - 18:50 | 5462813 IronForge
IronForge's picture

Abe just announced a 18 Month Delay in the VAT.

Tue, 11/18/2014 - 19:21 | 5462928 Zgangsta
Zgangsta's picture

The tax hike was not delayed indefinitely. Abe said it will absolutely, positively happen in April 2017.

Which will make it all the more hilarious when they weasel out again 

Tue, 11/18/2014 - 20:36 | 5463126 Quaderratic Probing
Quaderratic Probing's picture

http://www.tradingeconomics.com/japan/household-spending

Increase sales tax when no one is buying, that should get the economy going.

Lower interest, no inflation print to cover debt is whats going to happen .

Force sub zero rate savings account rates

0 interest rate bond, carry trade to anywhere rates are higher ( USD )

 

 

 

 

Do NOT follow this link or you will be banned from the site!