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S&P Downgrades Japan From AA- To A+ On Doubts Abenomics Will Work - Full Text
Who would have thought that decades of ZIRP, an aborted attempt to hike rates over a decade ago, and the annual monetization of well over 10% of sovereign debt would lead to a toxic debt spiral, regardless of how many "Abenomics" arrows one throws at it? Apparently Standard and Poors just had its a-ha subprime flashbulb moment and moments ago, a little over 4 years after it downgraded the US from its legendary AAA-rating which led to angry phone calls from Tim Geithner and a painful US government lawsuit, downgraded Japan from AA- to A+. The reason: rising doubt Abenomics is working.
Apparently S&P has never heard of the Magic Money Tree theory concocted by economists who have never traded an asset in their lives, in which "countries that print their own currency" have nothing to fear about a 250% debt/GDP ratio. In fact, the only fear is that it is not big enough.
Expect the market's reaction to be that since Abenomics has not worked yet, some nearly three years after it was launched then Japan will be forced to do even more of it, simply because it has no choice - it is now all in, the problem of course being that the BOJ is simply running out of stuff to monetize as even the IMF warned two weeks ago...
Here is the S&P's full downgrade.
Japan Ratings Lowered To 'A+/A-1'; Outlook Is Stable
OVERVIEW
- Economic support for Japan's sovereign creditworthiness has continued to weaken in the past three to four years. Despite showing initial promise, the government's strategy to revive economic growth and end deflation appears unlikely to reverse this deterioration in the next two to three years.
- We are lowering our sovereign credit ratings on Japan to 'A+/A-1' from 'AA-/A-1+'.
- The outlook on the long-term rating is stable.
RATING ACTION
On Sept. 16, 2015, Standard & Poor's Ratings Services lowered its long-term foreign and local currency unsolicited sovereign credit ratings on Japan to 'A+' from 'AA-'. The outlook is stable. We also lowered the short-term foreign and local currency unsolicited sovereign credit ratings to 'A-1' from 'A-1+'. We revised our transfer and convertibility (T&C) assessment to 'AA+' from 'AAA'.
RATIONALE
We believe the likelihood of an economic recovery in Japan strong enough to restore economic support for sovereign creditworthiness commensurate with our previous assessment has diminished. Over 2011-2014, average per-capita income in Japan slipped to US$36,000 from close to US$47,000. Apart from a sharp depreciation in the exchange rate between the yen and the U.S. dollar, this also reflected weak average economic growth during the period and persistently weak price trends. Despite showing initial promise, we believe that the government's economic revival strategy--dubbed "Abenomics"--will not be able to reverse this deterioration in the next two to three years.
Our ratings on Japan balance the country's strong external position, relatively prosperous and diversified economy, political stability, and stable financial system against a very weak fiscal position that the country's aging population and persistent deflation exacerbate.
Japan remains a relatively high-income economy despite years of low growth and deflation. We estimate per capita GDP at close to US$33,100 in fiscal 2015 (ending March 31, 2016). We estimate Japan's 10-year weighted average per-capita income growth at 0.9%.
The strength of Japan's institutional and governance effectiveness remains a key factor supporting the sovereign ratings. Japan's homogeneous and cohesive society, generally effective checks and balances in the government, strong respect for the rule of law, and free flow of information facilitate policymaking. This has helped achieve popular acceptance of challenging policy changes such as the 2014 increase in the sales tax rate. However, we see slow decision-making among policy institutions somewhat impairing policy implementation.
Japan's strong external position and monetary policy settings also support its sovereign credit fundamentals. The free-floating yen's status as a reserve currency reflects these strengths. We believe that the yen's status derives from the credible political and policy institutions in the country--including the Bank of Japan (BOJ), a sound financial system, freedom of capital flows, and sizable domestic capital markets. Demand for the yen as a reserve currency reduces Japan's vulnerability to large fluctuations in international capital flows and augments the BOJ's ability to conduct monetary policy.
A strong external balance sheet further strengthens support for the sovereign ratings. Despite the slide in the household saving rate as the population ages, the current account remains in consistent surplus. This indicates that private-sector savings in the country continue to exceed dissavings in the government sector. We project that Japan's total external debt will exceed financial and public sector financial assets by less than 20% of current account receipts (CARs) at the end of 2015, i.e., the nation will have a small narrow net external debt position. This metric does not include external assets held by the nonfinancial sector, which are very substantial. We expect Japan's net international asset position to be about 270% of its CARs or more in the next few years.
Japan's very weak fiscal attributes are an important weakness in its credit metrics. Since fiscal 2008, the damage that the global financial crisis and the Great East Japan Earthquake have dealt to the Japanese economy has depressed government revenue. However, general government spending has continued to grow, partly as a result of expanding social security spending associated with the nation's aging population. Despite the 2014 increase in the national sales tax and stronger tax revenue from exporters, we project annual increases in general government debt will equal 5% of GDP or more over 2015-2018. By our projections, the corresponding increase in net general government debt will reach 135% of GDP in fiscal 2018 from 128% in fiscal 2015.
The Bank of Japan's sizable purchases of Japanese government debt have kept the government's borrowing costs low. The central bank now holds about 30% of Japanese government bonds outstanding. However, interest rates could rise, increasing pressure on the budget, when the central bank normalizes its monetary policy stance. Japan will face by far the world's highest debt rollover ratio (including short-term debt)
OUTLOOK
The stable outlook on the long-term rating on Japan reflects our expectations that modest growth and stabilization of price levels will slow an increase in government indebtedness over the next two years and eventually stabilize it. We could raise the sovereign ratings on very significant improvements in the government's fiscal performance, likely brought on by the economy returning to low and sustained inflation accompanied by stronger growth. We could lower the sovereign ratings on indications that the government debt burden could rise more significantly than we currently expect, potentially due to continuously weak economic growth and prices trends.
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And now we wait for Japan's lawsuit against S&P. In the meantime, dear nervous bond investors: here are some inspiring words from the Japanese Finance Ministry to life your spirits.
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But ---- but ..... but ??????
Look how little Abe has to pay to borrow money. Surely there is *massive* demand for his debt.
That ZH article from a couple years ago from the BOJ's website is more appropriate now than ever before:
http://www.zerohedge.com/news/2012-11-17/japans-official-advice-bond-inv...
does this downgrade in and of itsaelf not trigger certain margin calls and derivatives?
I bet most of those are trigged at the loss of "investment grade." Honestly, I couldn't tell you, apart from saying that it doesn't really matter, as they would change the rules so they specifically weren't triggered.
A+.....not bad Mr. Spicoli.
Jeff Spicoli: Hey, you're ripping my card.
Mr. Hand: Yes.
Jeff Spicoli: Hey bud, what's your problem?
Mr. Hand: No problem at all. I think you know where the front office is.
Jeff Spicoli: You dick!
"Well, this is another fine mess you've gotten us into, Abe."
… say “Pretty Please!”
Anyone heard anything about this yet???? Sure seems to have gone under the radar.
http://www.cbc.ca/news/canada/montreal/silver-heist-montreal-shipping-co...
16 tons of silver stolen in Montreal.
When a developed economy finally defaults on its debt everyone will realize the Keynesian emperor has no clothes. Japan will likely be the first.
That is a pretty disturbing image of the grandson of Nobusuke Kishi. But the image I really love is the one of an insanely laughing Kuroda near the byline. That one image sums up the whole situation perfectly, both for Japan and the world.
The timeline for the collapsing global economy.
Japanese banks had been on a maniacal lending spree into real estate and the bubble popped in 1989. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.
Japan then had the rest of the world to trade with that was still doing well but it never really recovered.
US banks went on a maniacal lending spree into real estate and the bubble popped in 2008. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.
US banks used complex financial instruments to spread this problem throughout the West.
Rather than own up to losses and admit their bankers were fools, the UK and Euro-zone covered up the problems with loose monetary policy.
Japan, the UK, the US and the Euro-zone had the BRICS nations to trade with that were still doing well but they never really recovered.
The BRICS nations are now heading for recession.
Doesn’t look good does it.
Bug getting closer to hitting windshield!
History will record that escape velocity was about to occur but conspiracy nuts caused a panic by persuading people to collect shiny yellow paperweights and doorstops.
If it's not too much trouble.....can you scare the class with another global warming story.
PS......the 500 days are up.....how do you feel?
If you're hyperventilating I've got a paper bag.....and a couple hits of valium.....but you're really gonna have to sell it to get that.
https://www.youtube.com/watch?v=bS3O5zg290k
One of these days...Abe.
All I know is if I get one more junk.....I get a Nobel Prize.
Come on gang....make it happen for me.
Another believer in my long-held theory that the Japan scenario is where we're headed. Where all developed nations are headed.
Something is definitly wrong here, the head's on loose, but the shoes are tight.
Actually the bubble popped in 2005 it just took three more years to realize it,
the thing about japan is it is they are such a outlier.. all reason and logic goes out the window, as japan is evidence, they CAN kick the can for a awfully long time... noty forever, but a awfully long time.. its hard to break through a MSM believer's resistence, when they just bring up.. japan..
a printing we will go, a printing we will go, hi ho the dairy o, a printing we will go...
JFC.. how much longer can this go on?
P < P + I
Only Anglo money printing works. /sarcasm.
Same old.
S&P and Moody's???? The people that brought us AAA rated sub-prime securities.
The fact that there is still reliance on any of this kabuki is pitiful.
Counting bodies like sheep to the rhythm of the war drums
I like their complcated grading system that adds some gravitas to their fake ratings.
japanistan is screwed
dont worry! you can fix all of your problems with shabu
A+ = lol
I just want to know....how screwed to have to be to get a B?
Well begun, is only half done.
Seriously it is all rigged, fixed and it means nothing!
Why did they pick today to make this decision public?
Not to worry- you are being well compensated for buying Japanese bonds:
JGB 2 year yield 0.02%
JGB 5 year yield 0.08%
JGB 10 year yield 0.37%
JGB 30 year yield 1.43%
http://www.bloomberg.com/markets/rates-bonds/government-bonds/japan
who would own those JGB at those rates when Stawks are to the moon.....................and back
abenomics is working as intended perfectly. making the maggots richer while making the middle class smaller and poorer.
If they can "officially" downgrade J today, then the end might truly be nigh... J is toast, China on the brink, Europe ugly, US weak. Not good at all.
Run that by me again?
'Doubts that Abenomics will work'
Like we need S&P to tell us Japan is fucked. What a fucking laugh.
S&P is part of the global financial fraud being perpetrated on us non-elite shit-munchers.
Fuck S&P, fuck Shinzo Abe and fuck the Zio-terrorist scum that runs this whole sick fucking show.
this is a fucking joke, right?
Im tellin ya! there's a scorched earth policy from the maggots at the "top" (LOL - inbreds all )
much more so than previously... something big is a foot...
P < P + I
What is Kyle Bass' position?
A nickel for his thoughts?
On in a Keynesian world can you be downgraded to an A+.
It comes with a participation trophy.....and a happy meal.
I down grade Obama from FF junk to FFF- shit.
A+ sounds better than AA-
Bankrupt starts with a B.
japan is an abnormal country from every aspect.
A+ downgraded rating and the JGB is at .37%......Is this the "new normal"? If so, I think we have achieved economic nirvana.
Japan was at AA-??? Shit I thought they went to junk years ago.