Moody’s Investors Service said the outlook for Japan’s Aa2 sovereign credit rating is stable, noting the debt’s domestic investor base gives it safety similar to debt sold by top-rated nations.
“One of the credit strengths of Japan is not just its home bias, but through the global financial crisis, the safe-haven feature of government securities,” Thomas Byrne, senior vice president of Moody’s, said in an interview in Tokyo today. “In that sense it shares the same feature as U.S. government Treasuries.”
More than 90 percent of the nation’s government debt is held domestically. The yen rose after Byrne’s remarks, trading at 82.58 against the dollar as of 6:29 p.m. in Tokyo, as Moody’s pointed out factors supporting the nation’s sovereign rating even after Standard & Poor’s lowered its sovereign-debt rating for Japan to AA-, the first reduction in nine years.
“Moody’s comments weren’t as bad as expected, spurring some covering of yen shorts,” said Marito Ueda, a senior managing director in Tokyo at FX Prime Corp., a foreign-exchange margin company. “The yen had been sold earlier on speculation that Moody’s may be pessimistic about Japan’s rating.”
A short position is a bet on an asset price’s decline.
Byrne also said the recent climb in Japanese government bond yields isn’t necessarily detrimental to the nation’s credit grade. The yield on Japan’s benchmark 10 year bond rose 1 basis point to 1.325 percent today after climbing to 1.35 percent, the highest since April. Byrne said nominal yields have remained “remarkably low.”
Byrne said failure by Kan to improve Japan’s financing would increase risks on its credit rating. He said at a seminar in Tokyo that pressures will be “mostly on the downside.”
“Pressures will increase on the JGB rating unless certain things happen,” he said. “There should be an effective policy response to try to address the fiscal deficit” he said. “Any policy drift or friction” that prevents passage of bills in parliament “would be a credit-negative development,” he said, without elaborating.
Japan’s bond sales may surpass 50 trillion yen in the year starting April 2013, according to a projection by the Finance Ministry released last month. That suggests Prime Minister Naoto Kan may not meet a pledge of capping sales at 44.3 trillion yen.
Public debt, already the largest burden in the industrialized world, will probably increase 5.8 percent to 997.7 trillion yen in the year starting April 1, from a projected 943.1 trillion yen this year, the ministry said in a separate report released last month.
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