Fisher Capital Management Investment: Moody on Japan’s Credit Ratings

Last Wednesday, Japan’s debt rating was downgraded by Moody’s Investor’s Service to three levels below triple-A. However, Fisher Capital Management would have to insist that the outlook remains stable despite the country’s fear of experiencing crisis in the debt market.

The announcement was made few days before the ruling party was due to select the sixth prime minister within the last five years. This adds up the pressure of the political leaders to make drastic measures to improve the country’s finances.

Moody’s reasoned out that the cut to Japan’s government bond rating was due to the build-up of debts with large budget deficits since the 2009 global recession.

But it seems that Moody’s ratings is far better than other major ratings companies, like the Fitch and Standard & Poor’s Ratings, which rate Japan’s debt double-A-minus. These companies further add a negative outlook for the government’s finances.

As the U.S. gets more criticisms on its finances, so does Japan which is the world’s third largest economy. However, Japan is way down below the financial stability of the U.S., being downgraded from triple-A earlier this month by the S&P. Japan’s central government gets its annual budget from bond issuance, whose gross debt increased to more than 200% of the gross domestic products.

Japan is rated above single-A, a level that forces pension funds to cease buying government bonds. Most domestic investors largely finance the country’s deficit, according to Fisher Capital Management.

Mr. Thomas Byrne, senior vice president for Moody’s, insists in the later press conference that Japanese banks are far better than in the previous years, which is two-notch higher than the A2 ratings in 2002.

Finance Minister Yoshihiko Noda made no further comments about the ratings, but defended the credit worthiness of Japan’s debt.

The bond market remains smooth; there was an increase of 1.03% before reversing the benchmark 10-year yield and ended unchanged at 1.010%.

Before the gains were given up, the value of the yen against the dollar depreciated to 76.78 yen from 76.66 yen. However, an increase showed in the credit default swaps, which is the measurement of the market’s view of a bond’s risk.

Moody blames the downgrade to the country’s current political problems, which has prevented them to create durable and efficient policies to implement economic and fiscal strategies.

To add up to its structural debt problems, there are Japan’s additional expenditures to recover the March 11 earthquake and tsunami. Despite the obvious fact, several political leaders refuse to support tax increase, fearing a fragile economic recovery.

Moody’s also made further announcements lowering its ratings on many Japanese banks. There was also a cut on the ratings on twelve Japanese regional and local governments. » Fisher Capital Management Investment: Moody on Japan’s Credit Ratings