Japan Debt Downgrade ‘Unavoidable’ Even After Vote, Mizuho Says

Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, comments after Japanese Prime Minister Naoto Kan survived a parliamentary no-confidence vote by offering to resign once the country’s March 11 earthquake crisis is under control.

On the effects of the vote on Japan’s economy and financial markets:

“Prime Minister Kan’s offer to resign was made conditional. The second extra budget for the fiscal year will take a long time to ready. It’s impossible to submit a no- confidence motion twice during the same session of parliament. Kan has spoken of a major extension of the session, so until it ends, his cabinet is safe.”

“The rejection of the no-confidence motion doesn’t mean that the state of political confusion will change. Government bonds were bought after some of the uncertainty receded, but the buying isn’t likely to continue for long. I don’t think that politics is a significant factor that influences currencies and markets. Trends in U.S. yields and economic fundamentals are more important.”

“Japan’s economy will continue to be dependent on exports, with the U.S. economy being a major factor influencing demand. We also have to see how much progress is made in removing supply-side constraints. Today’s vote doesn’t mean that the size of the extra budget or bond issuances have been determined, even as the level of political confusion intensifies.”

“Yields on 10-year government debt are likely this year to range between 1 to 1.4 percent. For the time being, it may fluctuate between 1.1 to 1.2 percent.”

On the effects of the vote on Japan’s sovereign debt rating:

“The friction with the opposition may continue, and there seems to be no progress on getting legislation for issuing bonds passed. Enthusiasm for increasing taxes to finance earthquake reconstruction has waned, so any plan to raise levies is likely to run into difficulty. Obtaining a broad political consensus may be difficult. Regardless of today’s vote, a further downgrade in Japan’s sovereign debt rating is unavoidable.”

To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

To contact the translator on this story: Taku Kato in Tokyo at tkato6@bloomberg.net

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