Japanese corporate funding costs may decline after Prime Minister Yukio Hatoyama’s resignation as investors gain confidence his successor will improve the economy, according to Fukoku Capital Management Inc.
Hatoyama’s departure is “positive for the credit market,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management in Tokyo, which manages about $7.5 billion. “There won’t be negative surprises from Japan any longer.”
Hatoyama, who ended five decades of mostly single-party rule when he came to power in August, quit on June 2 after criticism over U.S. troop deployments in Okinawa. His fall came weeks before the government is to say how it intends to rein in the world’s largest public debt and bolster confidence in the nation’s bonds amid growing global scrutiny after Europe’s fiscal crisis.
Finance Minister Naoto Kan, the frontrunner to become Japan’s new prime minister, said yesterday that he’ll announce a new strategy for growth and fiscal discipline this month. Japan’s ratio of debt to gross domestic product is approaching 200 percent, the highest among developed nations, according to the Organization for Economic Cooperation and Development.
“The next prime minister has to revitalize Japanese firms by reducing corporate tax and raising consumption tax,” Sakurai said in an interview yesterday. Companies “have written off most bad loans” and are starting to recover from the global recession, he said.
Renewed investor confidence is helping top-ranked firms reduce their borrowing costs. Kansai Electric Power Co., rated AA+ by Rating and Investment Information Inc., told investors it may pay a 7 basis point spread for a sale of 10-year bonds, according to a person with direct knowledge of the sale. Spreads may narrow to about 3 basis points, according to Sakurai.
Even so, “we shouldn’t disregard that our public debt is twice our gross domestic product,” Sakurai said. “Bond yields may go up to 1.8 percent within a year in a worst case scenario.”
The yield on the 1.3 percent government bond due June 2020 was near a two-week high yesterday, rising 1.5 basis points to 1.28 percent at Japan Bond Trading Co. Japan’s 10-year yields reached 1.885 percent on June 16, 2008, the highest in two years.