Fitch Ratings Says Japan's `Political Noise' Risks Hampering Fiscal Goals
Fitch Says Japan ‘Political Noise’ Risks Fiscal Goals
Tomohiro Ohsumi/Bloomberg
Ichiro Ozawa, former secretary general of the ruling Democratic Party of Japan (DPJ), left, and Naoto Kan, Japan's prime minister and leader of the DPJ.
Ichiro Ozawa, former secretary general of the ruling Democratic Party of Japan (DPJ), left, and Naoto Kan, Japan's prime minister and leader of the DPJ. Photographer: Tomohiro Ohsumi/Bloomberg
The leadership challenge to Japanese Prime Minister Naoto Kan risks postponing efforts to reduce the world’s largest public debt, according to Fitch Ratings’ Andrew Colquhoun.
“The key issue for the ratings is whether a government can be formed with the will and authority to draw up and implement a credible medium-term fiscal consolidation strategy,” Hong Kong- based Colquhoun, head of Asia-Pacific sovereign debt, said in an e-mail to Bloomberg News today. “Recurrent political noise imposes delays in reaching this goal.”
Kan’s leadership is being challenged by Ichiro Ozawa, head of the ruling Democratic Party of Japan’s largest faction, in a election contest for party president on Sept. 14. Concern that Ozawa will win the race and boost public spending sent bonds tumbling last week, with benchmark securities posting the biggest weekly decline since April 2008.
Kan unveiled in June a plan to contain a debt burden that is set to exceed 200 percent of the economy, pledging to balance the budget in 10 years and place caps on annual spending and new bond sales. Ozawa has criticized Kan for urging ministers to cut their budget requests by 10 percent and has said he would double a childcare handout to families and extend a stimulus program.
Colquhoun in June said Kan’s fiscal strategy, which also pledged to cap annual spending at 71 trillion yen ($844 billion) for the next three years and keep new bond sales within this year’s record of 44.3 trillion yen, lacked details. The plan also said tax changes will be decided “soon.” Fitch rates Japan’s debt at AA-, the fourth highest grade.
Bond Futures
Benchmark yields rose four basis points to 1.185 percent as of 4:58 p.m. in Tokyo today at Japan Bond Trading Co., the nation’s largest interdealer debt broker. Japan’s 10-year bond futures for September delivery dropped 0.73 to 141.17 at the 3 p.m. close.
The winner of the race is ensured of becoming prime minister because the DPJ controls parliament’s lower house. Kan is the fifth prime minister since Junichiro Koizumi stepped down in 2006.
Even as polls show Japanese voters favor Kan over Ozawa, Ozawa is at a “slight advantage” of winning the party ballot because of his following within the party, according to Chiwoong Lee, senior economist at Goldman Sachs Group Inc. in Tokyo.
To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net
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