Moody's Downgrades Japan From Aa2 To Aa3

Tyler Durden's picture

What was that word Freud used when you are a weak, pathetic, corrupt, powerless, piece of anachronistic filth and instead of doing the right thing (for fear of losing your job or worse), you lash out at a weaker and irrelevant substitute? Oh yes, projection.

Moody's lowers Japan's government rating to Aa3; outlook stable
Singapore, August 24, 2011 -- Moody's Investors Service today lowered the Government of Japan's rating to Aa3 from Aa2, concluding the rating review that began on May 31. The outlook is stable.
The rating downgrade is prompted by large budget deficits and the build-up in Japanese government debt since the 2009 global recession. Several factors make it difficult for Japan to slow the growth of debt-to-GDP and thus drive this rating action.
Over the past five years, frequent changes in administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies. The March 11 earthquake and tsunami, and the subsequent disaster at the Fukushima Daiichi Nuclear Power Station, have delayed recovery from the 2009 global recession and aggravated deflationary conditions. Prospects for economic growth are weak, making it more difficult for the government to achieve deficit reduction targets and implement its Comprehensive Tax and Social Security Reform plan.
Support for the stable outlook comes from the undiminished home bias of Japanese investors and their preference for government bonds, which allows the government's fiscal deficits to be funded at the lowest nominal rates globally. We believe that this funding cost advantage will be sustained by considerable institutional and structural strengths, which will prevail even with large budget deficits in 2011 and 2012.
The rating action does not affect the Aaa country and bank deposit ceilings, the outlooks for which remain stable. Those ceilings act as a cap on ratings that can be assigned to the obligations of other entities domiciled in the country. Japan's short-term rating is unaffected and remains unchanged at P-1.
The global financial crisis has had a severe effect on Japan's economy.

The current government now forecasts a primary budget surplus (excluding interest payments on government liabilities) by 2020, versus the former Koizumi government's target of a budget surplus by 2012. Headline general government budget deficits will remain approximately at or above 7% of GDP through 2015, according to the Cabinet Office's "prudent" projection, well exceeding nominal GDP growth rates and thereby contributing to the inexorable rise in the debt-to-GDP ratio.
Large deficits and the collapse of growth since the early 1990s have led to an overhang of government debt that is by far the largest among the major advanced economies. That assessment holds true based on either the International Monetary Fund's (IMF) 2011 projection of 233% of GDP or the Cabinet Office's projection of 181% (the IMF has a broader accounting definition). Moreover, neither the IMF nor the Cabinet Office foresees containing or reducing the debt burden over the next decade under the current policy framework.
The March earthquake and nuclear disaster may make it difficult for the government to stay under its JPY44 trillion annual budget borrowing ceiling (which excludes special reconstruction bonds) in the current or next fiscal year, though the government's new Medium-Term Fiscal Framework for 2012-14 repeats its commitment to adhering to that target.
The government estimates that the total fiscal cost will be 5% of the current year's GDP, but that will be spread over 10 years.
The March earthquake also undermined Japan's recovery from the 2009 global recession. Consumer spending has softened further and deflationary pressures have intensified. Also, the strength of future investment growth is more uncertain even though supply chain disruptions are normalizing. This is because power capacity will be reduced from the loss or suspension of supply from nuclear power plants in Fukushima and elsewhere in the country. Japan's economy has been in recession for three consecutive quarters from October 2010 through June 2011.
In particular, the consequences of the Fukushima Daiichi Nuclear Power Station disaster have not fully played out, and it is not yet possible to precisely quantify its impact. The government may be exposed to contingent liabilities even after it establishes a special compensation entity that places the burden on the nuclear power industry. Furthermore, reductions in the national power supply from a crippled and suspect nuclear power sector would intensify headwinds against economic growth.
These developments further hamper the economy's ability to achieve a growth rate strong enough to steadily reduce the budget deficit. Although the government and ruling party unveiled a comprehensive fiscal reform plan on June 30, which identifies a broad range of measures to be taken, it lacks precision. In addition, a divided Diet and tensions within the ruling Democratic Party of Japan risk both the timing and implementation of the reform plan. Indeed, the imminent change in the party's presidency and the election of a new prime minister reflect the factious nature of the country's politics.
While the government sees as feasible its medium-term policy target of a halving of the primary budget deficit (excluding interest payments) to approximately 3% of GDP by 2015, assuming the government doubles the consumption tax to 10% by the middle of the decade, its ultimate goal of achieving a primary surplus by 2020 would require additional, and yet unidentified, fiscal measures. Moreover, even under the government's more vigorous and optimistic economic growth scenario, a decline in the debt-burden trajectory would remain elusive.
Japan's very large economy and very deep financial markets provide the wherewithal to absorb economic shocks. Its dependable domestic funding base provides an exceptional home bias for the government, which can fund itself at a lower nominal cost than any other advanced economy.

Furthermore, throughout the global financial crisis, in the months after the March earthquake, and in recent days with renewed turmoil in global markets, JGBs continue to demonstrate exceptionally strong safe-haven features.
Related to Japan's home bias is its strong external payments position, which insulates the country from global financial market shocks. In addition to a seemingly structural current account surplus on the balance of payments, its net international investment position at more than 50% of GDP is the largest of any industrialized advanced country, and is almost twice as large as that of Germany. In fact, net income receipts from overseas assets provide a bigger contribution to the current account surplus than the trade balance.
The steady appreciation of the yen to post-war highs is a headwind against export competitiveness, although the lack of price and wage inflation in Japan somewhat offsets this effect. Even if exports falter as a source of economic growth, we expect Japan's external position will retain its strengths.
And although the government's June 30 Comprehensive Tax and Social Security Reform plan is not fully worked out, it will help to sustain market confidence if, in the not-too-distant future, the government executes policies on a timely basis and economic growth recovers to support the fiscal adjustment process.
Credit-positive factors that could lead to a positive ratings outlook and could eventually lead to a ratings upgrade:
1. Well-established progress in achieving fiscal consolidation targets
2. A robust and sustainable recovery from the recession
Credit-negative factors that could lead to a negative ratings outlook or prompt a ratings downgrade include:
1. A delay in implementing the comprehensive tax and social security reform plan
2. The economy's inability to recover from the lingering effects of the global recession and the ongoing consequences of the March earthquake, tsunami and nuclear power plant disaster
3. A diminished home bias in the government bond market or substantial erosion in Japan's external strengths, which at some point would cause the market to price in a risk premium to government debt, making sizable annual refinancing requirements significantly more costly
The last rating action on the Government of Japan was on May 31, when its government bond ratings were placed on review for downgrade.
The principal methodology used in this rating was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on for a copy of this methodology.
Press releases of other ratings affected by this action will follow separately.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
mynhair's picture

Race to the bottom, bitchez!

spiral_eyes's picture

"The current government now forecasts a primary budget surplus (excluding interest payments on government liabilities) by 2020, versus the former Koizumi government's target of a budget surplus by 2012."

US govt budget surplus by 2077, bitchez! 

AldousHuxley's picture

well played Buffett to do it using Moody's. As long as US has higher rating than all others, despite the absolute rating, US will preserve reserve status. Now waiting for European soverign (France, Germany, + UK) debt down grades....perhaps after Greek default.

The Fonz...before shark jump's picture

Well said sir...

As for

Ol Warren he now sleeps easy knowing he will never get audited for the rest of his days....

Thomas's picture

Fire the CEO and install Andy Fastow in his place.

zorba THE GREEK's picture

Moody's downgrades Japan. But isn't Japan the model that the U.S. is using?

The U.S. is now following in Japan's footsteps by not writing off bad debts, keeping 

interest rates artificially low, and working hard to debase their currency.

If U.S. is AAA then Japan must be AAA too. Moody's must be confused.

ping's picture

I used to operate a rating system similar to this with my ex.

Every time she wouldn't take the dog for a walk I'd give her a minus point. Then she'd give me 2 minus points for emotional blackmail and dog-based chastisement. Then I'd give her 3 minus points for not making the dinner that time I had a bad cold, as well as interest on still not walking the dog, the outlook of which was cause for concern. Then she'd mark me down for passive aggressive girlfriend cruelty and inaccurate ratings. I'd respond with a reasonable, fact-based assessment, and mark her down for toxic co-dependency and unshaved legs. She'd subtract points for unkempt eyebrows and a stray nostril hair, just poking far enough out to drive her nuts. We got to negative million in about five minutes.

Unless America and Japan start tickling one another fast, shit is going to get real.

thx111's picture

You are right.

If Japan is not AAA as US, why has JPY getting stronger over past 30 years. 

If Japan is in such a bad shape, they should sell all their US bonds they own ( $100-1,000 billion? who knows how much.). 


Every time Japanese gov. spends Japanese tax payer's money and buy US$ to intervine the USDJPY currency rate, they use that US$ to puchase US bonds. 

which means

Japanese gov. currency interventionhard= Hard working Japanese tax payer's money invested in US bond. 

hambone's picture

Moody's, S&P, Fitch have it all wrong.  It's not nations or companies that should be downgraded...but certain segments of societies that do not control the monetary or fiscal policies.  Seem the ratings agencies should  simply downgraded the poor and middle and upper middle class of the world to junk given the tax obligations and inflation burden they must bear to maintain the status quo for the top 1%. 

No lobbyists in your employ should earn you an immediate junk status!

kengland's picture

CEO resignation to follow. On a seperate note....LIBOR RISING

hambone's picture

LIBOR soon to be double the 2yr T???  .4 vs. .2%???  Ummm, that seems odd.

Seasmoke's picture

looks like someone is going to be replaced with a Japaneese banker

unwashedmass's picture

let me slap you three times with a wet noodle, Japan....


what a crock...they don't have the balls to do the they turn, and O WHAT COURAGE....downgrade, hold my heart....Aa3....

take that Japan!!!! take that!!!!!!!!!!!!!!!!!!!!!!!!!


another serious profile in courage...jesus, we are screwed.

Bring the Gold's picture

I can't believe you were junked that post was a thing of beauty especially the "Profiles in Courage" part lmao! +1

Bunker Boy's picture

Very true. Kicking a country when it is down, out, and radiating at the mouth. Moody's knows which side of the bread gets the butter.

unwashedmass's picture

let me slap you three times with a wet noodle, Japan....


what a crock...they don't have the balls to do the they turn, and O WHAT COURAGE....downgrade, hold my heart....Aa3....

take that Japan!!!! take that!!!!!!!!!!!!!!!!!!!!!!!!!


another serious profile in courage...jesus, we are screwed.

speconomist's picture

Let me guess... Bullish for yen?

buzzsaw99's picture

Moody's, what a bad joke.

WestVillageIdiot's picture

"What do men like on a piece of pie that they don't like on a piece of pussy?"


Now, that's a bad joke.  To call Moodys a bad joke is an insult to every bad joke ever told. 

unwashedmass's picture


note...the Japanese are so terrified, the yen is getting stronger......sort of says it all, doesn't it?

mynhair's picture

Huh?  It's good for a 2 hr pop on USDJPY!  Dive in!

Cdad's picture

It almost certainly sets up for some dollar strength in the short term...even though, as Tyler points out, the basis for the call is undermined by the hypocrisy of the call.

Perhaps Moody's also needs to lose its CEO all of a sudden like.

Sequitur's picture

If Japan is Aa3, how in the fuck can USA be Aaa.

Also, what horseshit these ratings are. Aa3, Aa, A -- vapid letters so that bankrupt governments and corporates can have an "A" in front of their name, and Moody's can continue to earn fees slapping a worthless "A" on their shit paper. Fuck the rating agencies.

hambone's picture

You sir have vented well.  Thank you for sharing what we all feel.

fyrebird's picture

Okay, just for that I'm downgrading you to Aa-

On negative watch.

Now you better buy me a beer or else.

WestVillageIdiot's picture

A beer?  Are you kidding?  For such a great ratings job you usually get a Lamborghini or a pad out in The Hamptons.  You are asking for a beer?  Fucking rookie. 

hambone's picture

Olde English 40 (w/ optional brown bag) on the way...atta boy.

AldousHuxley's picture

USA is an empire with fiat currency backed by oil from Saudi + Iraq + soon Iran.

Japan is an ex-empire with fiat currency backed by US military.



cowdiddly's picture

The only reason that you have a ratings agency is so you can overrate some piece of shit to a sucker. The market will tell you what it is worth by demanding more or less interest.

speconomist's picture

On other news hurricane upgraded to AAA+

SRV - ES339's picture

A "wing and a prayer" I know, but wouldn't it be nice if this act was setting the stage for Moody's to do the right thing... and downgrade the US.

Bring the Gold's picture

Oh man I laughed so hard. The dead pan deliver the earnestness. Well played sir.


Wait you WERE joking right? The Shill of Omaha won't be biting Uncle "sweet heart deal" Sugar's hand any time soon.

speconomist's picture

How can Japan have lower rating than US if they hold $1 trillion of US bonds??? They could sell them before defaulting!

hambone's picture

Shhhh...don't try and bring logic to a worldwide bullshit party.  Best to just drink the shots and go along like everybody else.

Sequitur's picture

You sir, just hit it out of the park. The entire system is utter shit. Total, utter, unmitigated BULLSHIT.

fyrebird's picture

Like this: Because anyone holding $1T in US bonds and having no nuclear weapons of their own is toast.

Or something like that.

Kayman's picture

Don't count on Japan not having nukes.

magpie's picture

well, no one else bothers piling up plutonium on top of reactors

King_of_simpletons's picture

Moody's == Corrupt.

USA == AAAAA++++++++

lolmao500's picture

People flee on the yen as safe heaven (nuclear safe heaven) and it rises... the japanese banks are less in trouble than the US banks... the japanese people are saving money while America is hooked on credit... while the US economy is a big ponzi scheme, the government is corrupt to the bone and the fed is run by madmen... and JAPAN gets downgraded? Mwahahahaha

Rogier's picture

I still rate sushi AAA.

Fedophile's picture

Just as long as it didn't come from the Gulf Coast or Fukushima.

doomandbloom's picture

why is Roubini so keen to start a fight with Tyler......? keeps irritating all the time on Twitter...

fyrebird's picture

you are a weak, pathetic, corrupt, powerless, piece of anacrhonistic filth

Dude. I thought we were buds. So no Burning Man this year?

Abitdodgie's picture

I hope so i got my ticket and car packed !

fyrebird's picture

Bragger. I'd wish you a happy trip and days on the playa ... except that I cannot but help hating you for your good fortune.

Lone Deranger's picture

Just in time for the delivery of the new 787 Dreamliners to ANA. 

Sathington Willougby's picture


Do I look fat in this debt?


"And if she says something's not funny, you better not be laughing your ass off" - HJS

jkruffin's picture

So, Gold 2000 by Friday right?  That's about the way I see it happening...