Moody's downgrades Japan's credit rating

Yep, it shows just how fickle Japan's economic recovery is.

I wish they would stop throwing that 'world's third largest economy' crap. They should call it what it is! It's the world's largest debt!

no kidding, Abe is the death of Japan, just taxing the common man and giving massive company tax reductions and giving money to them

I agree with eveyone: these rating companies have no credibility after the mortgage disaster. They could not have seen that happen? Even though the exact same thing happened in Japan in 1990? First, the 住専問題 (mortgage providing company failure - I don't know this in English) like Fany May Freddy Mac, then the spreading mortgage crisis with property prices collapsing. And it happened because the mortgage company 住専 was too aggressive about loans, that is, they were toxic. Yes, it happened before here, yet nobody over there noticed. History just repeated itself, and these companies never learned. Also, the people there don't even know Japanese language so they cannot find out for themselves.

Is Moody's still giving its triple A rating to the mortgage debt that triggered the worst financial meltdown in living memory? Someone remind me.

Let Moody's downgrade whatever they want. The tax hike MUST be delayed if not scrapped entirely.

Japan raised its sales tax in April and planned another increase next year as part of efforts to repair government finances.

Yet the govt. has NO PLAN on cutting it's spending. How about we start there FFS.

"....and the BOJ sucks all this up as well as the 40-odd trillion yen of new debt issuance."

Because...it can. Many other countries, including western European ones, cannot. That's why none of the myriad scenarios of Japan's debt default, hyper inflation, skyrocketing int. rates, etc., etc. have ever come true. In fact, the opposite trends have occurred!

I assume your worldview is still praying for the day that at least one of its predictions/warnings actually takes place.

If you are investing in Japan, you have just lost some money today.

Moody's did the same thing in 2011 and downgraded Japan's credit rating to Aa3 from Aa2. It didn't cause any turmoil at all. This downgrade also is not expected to cause any major trouble.

Japan borrows very little from overseas markets and domestic demand base for Japanese government bonds is still strong.

I don't expect Japan to face a debt crisis until debt/GDP ratio reaches 300% which may take another decade or so. When that day comes, Japan will have to implement structural changes as they will need to borrow from abroad.

Say what you will about the ratings agencies, but what they have been guilty of is rating too highly, not too lowly. And they are always behind the curve.

Even such a slowcoach as Moody's now rates Japan's sovereign on the same level as economic titans such as Bermuda, the Czech Republic, Estonia, Israel, Oman, and just one rank above Botswana.

That Japan is still ranked amongst these minnows is really an insult to their comparitively excellent fiscal and economic management. Japan's rating ought be lower still.

A lower credit rating can increase borrowing costs for governments in overseas markets. Most of Japan’s government debt, however, is owned by local banks and funds.

... or rather, in increasingly large proportion by the central bank, as traditional lenders have wisely been reducing their holdings and shortening the durations of their portfolios, and the BOJ sucks all this up as well as the 40-odd trillion yen of new debt issuance... "Thanks" to the BOJ monetizing Japan's debts and destroying bond market functions, the downgrade doesn't mean much, but that's cold comfort.

A high volume economy requires a huge amount of debt, which is where finances for investment and expansion comes from. The problem is when the private sector is not borrowing for productive investment because of the over-accumulation tendencies of capitalism or uncertainty of return (such as that caused by deindustrialization and a shrinking consumer base) or when there is mainly borrowing for asset inflation investment (QE, for example), which creates few jobs or may not even go into the national economy, then the government must step in or the economy will face a depression.

As we see in Japan, things are so bad that even though the government borrows to stimulate the economy, it's to little effect. Until now, the Japanese government has sold bonds to mainly Japanese institutional investors, who are less likely to take the economy to ruin. This is not sustainable and at some point the government will have to drink from the stingy well of foreign lenders, where the flow of credit will cost more. We can expect further credit rating downgrades as the contradictions of capitalism and the destabilization of demographics create the perfect storm.

I assume your worldview is still praying for the day that at least one of its predictions/warnings actually takes place.

I have fire insurance, yet I don't pray for (or "predict" that) my home will burn down.

If one is a passenger in a car and the driver slammed down the accelerator with reckless disabandon, it'd be insane not to fasten your seatbelt, even if the other nutcases in the car were telling you that nothing could possibly go wrong and to live it up.

To me, you seem like one of those other passengers, if not the person who'd be driving.

"The Nikkei closed around 70 points higher today and is 15 percent higher from the same time last year. Anyone who is "losing money" is getting really bad investment advice."

Convert that money into foreign currency. See if you still made any money. Best advice is to don't invest any money in Japan. Whatever you earn is devalued.

The Nikkei closed around 70 points higher today and is 15 percent higher from the same time last year. Anyone who is "losing money" is getting really bad investment advice.

You talk a lot about the bad mortgage debt in America, and yet you don't see that the rise in the Nikkei (and the Dow) is fundamentally the same as the housing hubble? You don't see that nearly the same conditions which fueled the rise in real estate prices (easy credit, and a foolish market which didn't realize the prices were greatly overvalued) has also driven up stocks? Instead of the banks screwing everyone, this time it is the corporations who are driving up their own stocks, and the central banks, which provided the means.

You're confused over soverign debt and securitized debt. In fact, economies from Iceland to Ireland worldwide were trashed by toxic instruments.... that Moody's rated as top-quality.

And what if the current stocks are also trash instruments? What if Japan government bonds are toxic trash? After all, no one is now buying them except for the BOJ itself. That says a lot about the quality of these bonds, and investor's belief in their safety.

In the end, debt is debt. It accrues interest, and it must be repaid, along with that interest. The Government is obligated to repay it's debts, just as anyone else is. Were this not the case, governments would not borrow money by issuing bonds, and paying interest on them, they would simply print the money they need.

You'd have to be absolutely insane to invest in japan now. Unless you enjoy losing money that is. 2 years ago, December 2012, there was 85 yen to the dollar, now it's 119 and falling rapidly. Only against the Russian Rouble has the yen held its ground. Ha ha ha! 2 completely toxic countries for investors, they are made for each other.

And in Japan's case, the government pays back the debt...to itself. If you had to pay back your own money to yourself, how worried would you be?

Sorry, you are wrong. Japan pays it's debts to it's bondholders, not itself. Japan's private financial institutions and insurance companies own 90% of the 1000 trillion yen in bonds issued, right? When these bonds mature, they are redeemed to the government, who must pay the face value, in addition to whatever the yield rate was, right?

The assets currently being purchased by the BOJ may be redeemed to the bank itself, but that is a scant fraction of the amount of bonds in circulation.

I can't get American people who make fun of other countries' economy. US economy is still a mess, despite the apparent growth, you know. Your attitude is childish and you're also in denial about the real facts.

Japan pays it's debts to it's bondholders, not itself.

That is right.

Japan's private financial institutions and insurance companies own 90% of the 1000 trillion yen in bonds issued, right?

The BOJ has more than 23% now, and growing fast. http://www.japanmacroadvisors.com/news/view/boj-owned-23per-of-the-jgb-market-in-october

In lala-land, this is almost the government paying it's debts back to itself (if we ignore the idea that the central bank is supposed to be independent), but in the real world such behaviour has it's consequences, as illustrated by last month's 10 yen drop in the value of the currency against the US dollar, in the wake of the expansion of the BOJ's QQE.

I think it is likely that the yen will continue to decline in value, the higher the BOJ's holdings of JGBs goes. I'll not be letting go of my dollars for a good time yet.

"Japan pays it's debts to it's bondholders, not itself. That is right."

Well, guys, the NIkkei is up 172 points as I write and Japan's bond market completely unaffected. What happened to your worldview about the "loss of confidence in financial markets" in the event of a soverign credit downgrade based on the fiscal debt?

Oh yeah, yet another prediction of mine comes true (no repercussions), while a prediction of the debt hawk crowd falls flat on its face. Time to find a new worldview, guys. The real word disagrees with you. LOL.

In answer to your question: where does Japan get the money to meet these obligations? (Hint: from a different place that Argentina and Greece get their money).

As has been noted, the BOJ is now buying all the bonds on offer, after their halloween surprise additional "easing" annoucement, coinciding with the GPIF's announcement of their reduction of JGBs in their portofolio. Maybe it's just a coincidence though. In any case, bond market functions were already impaired, but with the BOJ's extra "easing" the bond market is no longer much of an indicator of anything.

However, the BOJ cannot control the value of the yen, which has suffered a not-so-garden-variety 10 yen drop against the US dollar in the month since the BOJ's recent announcement to expand their already huge QQE program (and the yen has fallen to new lows again today, if you wish to concern yourself with short term movements).

So yes, besides the plunge in the yen, there have been no repercussions whatsoever. Congratulate yourself on how right you were! I'll instead spend a few seconds contemplating how much value my hard-earned savings would have lost during that 1 month period, had I still been fully loaded up in yen.

@Alex80 That is why the US is still the reserve currency of the world, huh? The so called mess you see in the US economy is only the inequality. It has zero effect on economic power internationally. Zero, zilch, nada. It only hurts when people decide to throw down the government, which regardless of your desire remains extremely unlikely.

It's only lost if that particular individual had plans to buy something in USD.

Don't know where you get that notion. It's not the case that a currency can depreciate versus another without any consequence whatsoever.

Don't know why you bring up micro stuff when discussing macro.

Micro and macro stuff is interdependent. The only place in which they exist independently is the textbooks.

Don't know where you get that notion. It's not the case that a currency can depreciate versus another without any consequence whatsoever.

Never said so. But I don't understand the reason why you brings this up constantly. For every single yen drop, it is reported that Toyota's operating profit increases 40 billion yen. Those companies that invested overseas during the Endaka era are receiving high ROI due to the yen decrease. Some benefit. Some don't. Point? It's all relative.

It's all relative... yeah OK, but it's the accumulated savings of millions of years of labour we're talking about.

Abe will do what he likes, but I'm not able to agree that it's no consequence to me or the other residents of Japan that his actions would effectively rob them of significant amounts of their wealth. I think I'll take another option, thanks.

"....his actions would effectively rob them of significant amounts of their wealth."

These days, it's about the US dollar's ongoing strength, rather than the yen's weakness. Investors are buying greenback like crazy on all the positive data coming out of the US. That trend is not about Japan's policies.

Unlike Abe, Obama was smart and didn't hike everyone's tax on everything right just as the economy was starting to recover. Doh!

In the short term, it has. Eventually the weaker yen will bring it's benefits as through begaring thy neighbours Japan's competitiveness will increase, but how long that takes and whether it'll all have been worth it for the economy and its residents remains to be seen.

If one agrees with this premise (and yes I gather, nigelboy, that you don't), there's no need to keep both one's physical and 100% financial presence tied solely to Japan's fortunes. Indeed it's partly because of people who think in these terms that the yen is plummenting in the first place.

One begs how Japan was able to survive pre 2007

In my view, the situation has changed significantly. Japan today wears trade deficits. Maybe turning some nuclear plants back on can help to alleviate this, but as is often pointed out a lot of Japanese industry has been relocated overseas. The current account, while still in surplus now looks to be headed the same way. The labour force is now shrinking. I think the yen will have to be significantly weaker still before these trends reverse, and it'll take a long time before Japan's demographics can work in it's favour again. Japan needs to have absolutely top class policy settings to counter all of this, but alas the politicians here are clueless.

If you are just so happen to realize those gains and converting them back into yen,

I didn't divest myself of a chunk of my yen savings for enjoyment or to make money (although yes if I were to convert back to yen now I would have some "profits" in yen terms). The point is to have some of my eggs in another, better looking basket. Last thing I want to do (until I need to spend the money in yen) is convert it back. The especially ridiculous thing about that is that the tax agency would then demand I hand over some of the extra yen I obtained for the trouble, despite the yen weakness being doctored by the government itself.

But here's the thing. When done in masses, the gains simply disappears because masses are selling USD in masses to buy JPY in masses.

Yes but there are more users of currency than just people looking to diversify their savings. All that wealth that goes to buy energy from overseas doesn't come back, Japan needs to generate new value to offset the effect, and this is the uphill battle it faces.

Why would the account surplus be heading the other way when such foreign investments made during the endaka era are bringing in returns to Japan?

You tell me what's going on. The current account surplus appears to be in decline and increasingly slipping into negative territory on month-on-month basis in recent years. This is what I see when looking at the data.

Again micro BS which in your case, has nothing to do with majority of the Japanese residents who will use yen.

You're still missing this - using yen is not the point. The point is that the value of the yen at a point in time when one wishes to use one's money is by no means guaranteed to be the same as it is right now (or was 2 years ago). Try telling all majority of Japanese residents that the depreciation of the yen has nothing to do with them, I doubt you'll find much sympathy for your position on this.

For what it's worth I do wish you good luck with your deflationary mindset.

You haven't convinced one iota that it does.

Well, you are you and welcome to believe whatever you want, I'm talking about other people.

Your "gain" can only come into fruition when you convert them back to yen and spend them in yen.

Look it's you who is talking about a "gain". As I said, "I didn't divest myself of a chunk of my yen savings for enjoyment or to make money". And as I also said, good luck with your yen-centric, deflationary mindset. I'm not denying that the gamble might work out for you.

I have no idea what this means but if you're talking about those Japanese people who cashed their yen into dollars

I was talking about the "majority of the Japanese residents who will use yen", that we were discussing above.

So my point is that while I haven't convinced you of anything, as for residents of Japan, that they use yen does not mean that the value of the yen doesn't matter to them, contrary to your claims. The "Yen plunge hurting, but more still to come" news story out today illustrates it again, and diversification of savings into other currencies is a simple approach to alleviating the troubles that the yen plunge brings.

more power to them but eventually they would end up doing the opposite when the time comes unless of course they are going to buy some real estate in U.S, for instance.

Yet I have no plans to buy US real estate, or even visit the place to spend tourist money...

So what if individual people convert their foreign currency back to JPY when they need to use it, whenever that may be? The point is not to chain one's savings to the fortunes of a single currency, which has been plunging in value in recent years. Diversifying out of it so that the value of that single currency no longer matters, during the time between when one dumps it and when one actually needs to use it in the future, at a point in time when the value of the yen remains unknown... Sure the yen might go up again, but that'd be the price of being diversified rather than being all eggs in one flimsy basket.

This can only be a wacky idea if one is convinced that deflation and yen strength will return before long.

Again, you completely ignore the benefits of yen devaluation which is the record return on investments on from overseas.

No one gets such benefits (in yen terms) unless they have dumped some yen, which is what I have been taking about allllllll alooooong.

And anyone who listens to moodys has rocks in their heads, considering they were completely absent in their actions with their ratings for the mortgage farce prior to 2008, if they had of done their job properly things may have been averted, but seeing as how moodys, standard and poor etc are paid by the banks you can kinda guess why they were not doing their job properly prior to the crunch in 2008.

These ratings companies are irrelevant and should just be ignored, but instead they can influence markets and economies unfortunately. Just another part of this whole broken system.

"Sure, since that country remains the world's number-one economy...."

You're confused over soverign debt and securitized debt. In fact, economies from Iceland to Ireland worldwide were trashed by toxic instruments.... that Moody's rated as top-quality.

"If you are investing in Japan, you have just lost some money today"

The Nikkei closed around 70 points higher today and is 15 percent higher from the same time last year. Anyone who is "losing money" is getting really bad investment advice.

"the rise in the Nikkei (and the Dow) is fundamentally the same as the housing hubble?"!

No, it isn't "fundamentally" the same. The housing bubble was caused by a specific group of subprime institutions mainly in the southwest of the US, which were unregulated, And then the debts were packaged by Wall St. into collateralized debt instruments, and not equity, which is ownership of corporate capital. You're talking completely, utterly out your XXXXX. The fact you pick up "goods" doesn't say much about the intelligence of the readers of this forum.

"The Government is obligated to repay it's debts, just as anyone else is"

And in Japan's case, the government pays back the debt...to itself. If you had to pay back your own money to yourself, how worried would you be?

.

So yes, besides the plunge in the yen, there have been no repercussions whatsoever. Congratulate yourself on how right you were! I'll instead spend a few seconds contemplating how much value my hard-earned savings would have lost during that 1 month period, had I still been fully loaded up in yen.

It's only lost if that particular individual had plans to buy something in USD. Don't know why you bring up micro stuff when discussing macro.

It's all relative... yeah OK, but it's the accumulated savings of millions of years of labour we're talking about.

What on earth are you talking about? If a Japanese person saves in yen and plans spend in yen subsequently, it's mostly irrelevant.

Abe will do what he likes, but I'm not able to agree that it's no consequence to me or the other residents of Japan that his actions would effectively rob them of significant amounts of their wealth. I think I'll take another option, thanks.

Rob??? What???

The deflationary mindset is strong with this one...

These days the US economy indeed looks the best relatively, but the yen has declined against virtually all other currencies to varying degrees since Kuroda announced his latest QQE expansion on Halloween. The only currency I could find that isn't stronger against the yen is the Russian Ruble.

So the objective conclusion is that the trend has been predominantly yen weakness driven by local policy.

The deflationary mindset is strong with this one...

Puzzling comment. Again overemphasizing ultra micro (which is your divestment in yen) versus the macro. It's equivalent to stating Japan nearly doubled her wealth from 2001-2011 (135 yen-->75 yen).

I was but emphasizing your deflationary mindset. You appear to have a yen-centric mindset at that, as well as perhaps being oblivious to the effect of inflation differentials.

I was but emphasizing your deflationary mindset. You appear to have a yen-centric mindset at that, as well as perhaps being oblivious to the effect of inflation differentials.

No you didn't. All you talk about is the devaluation as if Japan has lost it's worth.

In the short term, it has. Eventually the weaker yen will bring it's benefits as through begaring thy neighbours Japan's competitiveness will increase, but how long that takes and whether it'll all have been worth it for the economy and its residents remains to be seen.

One begs how Japan was able to survive pre 2007.

If one agrees with this premise (and yes I gather, nigelboy, that you don't), there's no need to keep both one's physical and 100% financial presence tied solely to Japan's fortunes. Indeed it's partly because of people who think in these terms that the yen is plummenting in the first place

You might be enjoying divesting in yen converting into USD. If you are just so happen to realize those gains and converting them back into yen, you will no doubt enjoy the gains made which very few Japanese took such advantage. But here's the thing. When done in masses, the gains simply disappears because masses are selling USD in masses to buy JPY in masses.

Macro and Micro. .

In my view, the situation has changed significantly. Japan today wears trade deficits. Maybe turning some nuclear plants back on can help to alleviate this, but as is often pointed out a lot of Japanese industry has been relocated overseas. The current account, while still in surplus now looks to be headed the same way. The labour force is now shrinking. I think the yen will have to be significantly weaker still before these trends reverse, and it'll take a long time before Japan's demographics can work in it's favour again. Japan needs to have absolutely top class policy settings to counter all of this, but alas the politicians here are clueless

Why would the account surplus be heading the other way when such foreign investments made during the endaka era are bringing in returns to Japan?

I didn't divest myself of a chunk of my yen savings for enjoyment or to make money (although yes if I were to convert back to yen now I would have some "profits" in yen terms). The point is to have some of my eggs in another, better looking basket. Last thing I want to do (until I need to spend the money in yen) is convert it back. The especially ridiculous thing about that is that the tax agency would then demand I hand over some of the extra yen I obtained for the trouble, despite the yen weakness being doctored by the government itself.

Again micro BS which in your case, has nothing to do with majority of the Japanese residents who will use yen. What you have now is essentially a 'profit' on paper and is only realized after you cash it into yen which results in SELLING the USD and BUYING JPY. Like I said, when done in masses, those gains are narrowed to where it's relative.

You tell me what's going on. The current account surplus appears to be in decline and increasingly slipping into negative territory on month-on-month basis in recent years. This is what I see when looking at the data.

The trade deficit has increased but the returns on overseas investment was at 2.3 trillion yen, third highest ever recroded. Enyasu effect.

You're still missing this - using yen is not the point. The point is that the value of the yen at a point in time when one wishes to use one's money is by no means guaranteed to be the same as it is right now (or was 2 years ago). Try telling all majority of Japanese residents that the depreciation of the yen has nothing to do with them, I doubt you'll find much sympathy for your position on this.

It doesn't. You haven't convinced one iota that it does. Your "gain" can only come into fruition when you convert them back to yen and spend them in yen.

No one gets such benefits (in yen terms) unless they have dumped some yen, which is what I have been taking about allllllll alooooong.

No. They are eventually converted back to yen which is the point all along.

Your "gain" is simply just a valuation and the gains can only be realize until you convert them back to yen (which again is selling your dollars and buying yen) and subsequently purchasing something in Japan in Yen.

"Only against the Russian Rouble has the yen held its ground. Ha ha ha! 2 completely toxic countries for investors, they are made for each other."

Add one more country, North Korea.

So my point is that while I haven't convinced you of anything, as for residents of Japan, that they use yen does not mean that the value of the yen doesn't matter to them, contrary to your claims. The "Yen plunge hurting, but more still to come" news story out today illustrates it again, and diversification of savings into other currencies is a simple approach to alleviating the troubles that the yen plunge brings.

Again, you completely ignore the benefits of yen devaluation which is the record return on investments on from overseas.

So what if individual people convert their foreign currency back to JPY when they need to use it, whenever that may be? The point is not to chain one's savings to the fortunes of a single currency, which has been plunging in value in recent years. Diversifying out of it so that the value of that single currency no longer matters, during the time between when one dumps it and when one actually needs to use it in the future, at a point in time when the value of the yen remains unknown... Sure the yen might go up again, but that'd be the price of being diversified rather than being all eggs in one flimsy basket.

and my point is that it's irrelevant to the Japanese because they will convert back to yen. How long or how much we really don't know but it's the process of selling dollars (for instance) and buying back the yen.

Well, you are you and welcome to believe whatever you want, I'm talking about other people.

I have no idea what this means but if you're talking about those Japanese people who cashed their yen into dollars, more power to them but eventually they would end up doing the opposite when the time comes unless of course they are going to buy some real estate in U.S, for instance.

Look it's you who is talking about a "gain". As I said, "I didn't divest myself of a chunk of my yen savings for enjoyment or to make money". And as I also said, good luck with your yen-centric, deflationary mindset. I'm not denying that the gamble might work out for you.

The point is, it's not about you or me from a macro economics standpoint. It never was.

Is Moody's still giving its triple A rating to the mortgage debt that triggered the worst financial meltdown in living memory? Someone remind me.

Sure, since that country remains the world's number-one economy, has a huge annual GDP, vast land, material, agricultural, and energy resources, a growing population, a prime geographic location with coasts on the Atlantic and Pacific oceans, not to mention a national debt which half what Japan's is.