Tuesday, August 23, 2011

Moody's Cuts Japan's Rating One Notch to Aa3

Moody's Investors Service has cut the rating on Japan's government debt by one notch to Aa3, blaming large budget deficits and the build-up of debt since the 2009 global recession.

Public debt in Japan is twice the country's $5 trillion GDP. Much of the debt has been absorbed domestically by the notorious Japanese savers. When the savers are saturated, expect Japan to escalate money supply printing. Thus, the possibility of a straight default is unlikely.

Standard & Poor's downgraded Japan in January to AA.

These downgrades are relatively uninsightful, since the debt problems are greater than the minor downgrade, but given the likelihood of the Bank of Japan printing money to support the debt, over-rates the possibility of default. Though accelerating price inflation would be the eventual outcome.

1 comment:

  1. Well they have about 1 trillion in US treasuries as an asset. Maybe they should start dumping them.