S&P downgrades Japan's credit rating

Who you gonna call? Deflation Busters! Let's see Abe and Co. Jawbone this one into a rally in the Nikkei. But nobody is buying J debt except for other indebted J entities With money they borrow from the BOJ , who swaps that for bad debt, which makes good debt, right? We're cool.

The Japanese own their own debt unlike any other country, so what S and P says means squat.

Standard & Poor’s ... downgraded its sovereign credit rating on Japan by one notch, saying the government had little chance of turning round the economy or weak inflation in the coming years.

As long as a nation is able to create money via its central bank, fueling inflation should be a cinch — simply print money and then make sure it gets in the hands of the consumer. As it now stands, the Bank of Japan and the Fed are printing plenty of money through their quantitative easing schemes, but that cash is lining the pockets of the 1% rather than finding its way to the consumer. The 1% are getting richer and the rest of us are getting shafted.

Abe's quantitative easing "policy blitz" (Japan's "80 trillion yen annual asset-buying scheme") is based on a Reaganomics trickle-down ("let's hope the 1% through us a few breadcrumbs") mindset that never has and never will work. It is welfare for the rich, to the detriment of the middle class. Instead, the central banks would quickly overcome deflation if they put the money now being created directly in the hands of consumers.

The Japanese own their own debt unlike any other country, so what S and P says means squat.

Garbage. It is because Japan has not sold their debt on the open markets that they have been able to paint themselves into a corner. If they sold their debt on the open market, the market would demand that the Japanese government manage it's spending better before the bonds could be sold.

If you borrow money from a bank, you damn well need to be able to convince the bank you will be able to pay them back. If you are borrowing money from yourself, the same rule does not apply. You can do like Japan does, borrow money to pay money you previously borrowed from yourself, etc etc, until you find that your debt is more than 250% of your income, and that even as you are spending more than 1/4 of your income for debt servicing, the balance continues to increase by more than 5% per year.

The only good thing Japan has going for it, and the main reason why the yen has any value is that during the boom years Japan bought a lot of American debt, which, unlike Japanese debt, has a great deal of value in the world market. But as Japan continues to rack up ever greater amounts of domestic debt, it will eventually overcome it's balance of foreign debt. This is not a good thing.

Complete nonsense from S&P, and entirely predictable. Whether Abenomics fails or succeeds, neither outcome has any effect on either the bogus concept of Japan's "creditworthiness" or the operation of the Japanese monetary system. And also irrelevant. Japanese government bonds are issued in exchange for Japanese yen, not foreign currency, and so what foreign "investors" think is of zero importance. What S&P really trying to do is what the real purpose of "ratings agencies" is, to intimidate a sovereign country into falling in line with the neo-liberal dogma and objectives of international finance. Japan's allegedly "nationalist" prime minister should tell them to shut-up and shove it, but of course he won't.

@sangetsu

"It is because Japan has not sold their debt on the open markets"

Huh? JGBs are sold at bond auctions.

S&P telling us what what virtually everyone already knew.

The Nomura economist quoted is so kind. It's not that the government's plan made them "look unreliable" on fiscal sustainability - they are actually unreliable, and failed to disguise it.

Lowering credit ratings generally makes it more expensive for governments to borrow, but S&P said the central bank’s huge asset purchases have kept costs down.

Indeed they have so far despite some initial volatility, but there is no endless free lunch, and look what has happened to the currency so far. The yen in real effective exchange rate terms is the weakest it's been in more than 30 years. Mr. Kuroda said he thought it will struggle to go much lower, but the ongoing collusion between the BOJ and Ministry of Finance and intransigence of Abe's team doesn't inspire confidence.

Garbage. It is because Japan has not sold their debt on the open markets that they have been able to paint themselves into a corner. If they sold their debt on the open market, the market would demand that the Japanese government manage it's spending better before the bonds could be sold.

The bonds ARE sold on the open market, the Bank of Japan then buys them from the original purchaser. If the Bank of Japan stops purchasing them at some point the effect will be that the original purchaser gets to keep them and happily collect their risk-free income like they used to. Back when bond prices and interest rates were pretty much exactly the same as now. Bond investors don't give a hoot about how government "manages its spending", they just want the free money.

And if people don't understand the difference between an individual going into a bank to try and get a loan, and the operation of the Japanese and global financial systems...I really don't know what to say except "My God!"

Abenomics at its best. How about making pease with our closest neighbor, will a potential market of one billion people?

JGBs are sold at bond auctions.

The bonds ARE sold on the open market, the Bank of Japan then buys them from the original purchaser.

A rare occasion when I am able to find a point on which to concur with JeffLee and GuyJD.

However, that the bonds are sold via bond auction to primary dealers, but are then purchased from the primary market dealers by the BOJ, is why this arrangement has the appearance of debt monetization, which is globally regarded as a "no-no".

If the Bank of Japan stops purchasing them at some point the effect will be that the original purchaser gets to keep them and happily collect their risk-free income like they used to.

I don't think it's a sure thing that the original purchasers will be happy to keep them, when the whale that buys 80 trillion yen's worth per annum exits the "market". I certainly don't get such an impression judging by what the actual purchasers themselves say.

Abe is struggling to make good on his pledges to cut red tape and open up the economy

He isn't struggling: he has given up. Abe is spending all his time and energy trying to pass illegal security bills whilst the economy goes down the toilet.

The posters here who believe downgrades in Japan's credit rating will not have serious consequences are only deluding themselves. Being the "world's most indebted nation" will have very serious consequences in the fullness of time, no matter what you may hope for or want to believe. It is far better to face up to it and get ready for more bad times than trying to avoid the reality of a very serious situation.

Great. English teacher economists.

"The agency cut its rating on Japan’s debt to A+ from AA-, placing it below regional rivals China and South Korea."

Except for the JCR (Japan Credit Rating Agency), all reputable institutes' ratings for China and South Korea are higher than Japan. I think Japan is living in its own world, a very interesting country. Good luck on Abenomics.

The Japanese own their own debt unlike any other country, so what S and P says means squat.

Japanese government bonds are issued in exchange for Japanese yen, not foreign currency, and so what foreign "investors" think is of zero importance.

Predictable nonsense whenever on Japan's economy, Abenomics and/or debt is published here on JT. Ignoring, of course, the one irrefutable fact in the article...

“We believe that the government’s economic revival strategy—dubbed ‘Abenomics’—will not be able to reverse this deterioration in the next two to three years,” the agency said.

Regardless of who holds the debt, how it gets sold or any of the other esoteric arguments some posters here insist on having, the fact is that none of it is working, and it hasn't for over two decades. And Japan is facing at least "two to three years" of continued stagnation. More debt + more spending = zero results. But, go home at night feeling good about the fact that you've been able to post on JT and tell S&P off.

Japan is the developed world’s most indebted country

An uncontested fact !

“Today’s downgrade is a message that the government will need to have a more credible fiscal reform plan.”

The solution only painted as more and more fiscal reforms => heavier and heavier taxes (forget reducing your expenses)

Pump money to stop market won't make the economy going better.

@jerseyboy You, the S&P, and all the other debt panic monkeys can believe that your fantasies and superstitions are "irrefutable facts" as much and as long as you want. But feel free at anytime to explain to all how government spending results in stagnation and government not spending results in growth. I look forward to the entertainment.

Correction: Pump money to Stock Market won't make the economy going better.

Good post jerseyboy, you know it when all it draws in response is more nonsense!

fxgai -- thanks. Like you said all that it could offerred in response was more nonsense:

@jerseyboy You, the S&P, and all the other debt panic monkeys can believe that your fantasies and superstitions are "irrefutable facts" as much and as long as you want. But feel free at anytime to explain to all how government spending results in stagnation and government not spending results in growth. I look forward to the entertainment.

Ignoring, as usual, because the poster believes that he is so clever, that his post basically admits the truth in what myself and others, including yourself, have been saying for several years -- that the Japanese domestic economy is so hopelessly bloated and inefficient, that only way for it to not completely tank is massive and continuous government intervention. So all they can do is keep saying that it's OK, because "Japan holds its own debt". Yo, guys, that is missing the forest because of the trees.

"The agency cut its rating on Japan’s debt to A+ from AA-, placing it below regional rivals China and South Korea."

They just downgraded Japan by one notch, and raised South Korea by one notch yesterday, so now the spread is even bigger. Lot of Japanese net rightwingers irate today just because of this.

Lot of Japanese net rightwingers irate today just because of this.

No because it is a private company, hardly can be trusted.. Do you know right before Lehman bankrupt, S&P gave it AAA? And everybody knows Koreans economy is rapidly worsening now. It is very strange.

fxgai -- thanks. Like you said all that it could offerred in response was more nonsense:

And some people still claim internet message boards are not just an echo chamber.

Meanwhile today on the Bloomberg website was the following article titled "Oh, No! Japan Gets Downgraded. Oh, Wait." http://www.bloombergview.com/articles/2015-09-16/japan-downgrade-is-sign-raters-are-playing-catch-up Here are just a few quotes from the article:

"The proper response to a sovereign downgrade by a major credit rater is: “Who cares?”"

"The vast majority of Japanese government bond investors live in Japan, and probably won't be concerned about the verdict of U.S. financial services companies, especially ones with the questionable reputations of the credit raters."

"So the Japanese sovereign downgrade isn't a meaningful development. Best to ignore it, as markets undoubtedly will."

The writer of the article is a fellow by the name of Noah Smith, a professor of finance. Clearly a man who "thinks he is so clever" and is offering only "nonsense". His contact information is available at the bottom of the page. So if they've got the cojones, I think Japan Today's keyboard warriors should get in touch with Mr.Smith so that he can be "educated" on the true realities of the Japanese economy and be able to mend his ways. I'm sure he'd love to hear from them. And if we are lucky, he'll even reply with a nice, friendly evisceration of their "educatin'"

No because it is a private company, hardly can be trusted.. Do you know right before Lehman bankrupt, S&P gave it AAA? And everybody knows Koreans economy is rapidly worsening now. It is very strange.

I rest my case when I say Japanese net right are irate and angry today.

FYI, all of the three ratings agencies, not just S&P have the same credit ratings on Japan and Korea. So all of them must be strange. And it's also strange that you would say Korean economy is rapidly worsening, when it's growth (2.5%) is still double the Japan's growth rate of 0, which is one of the reasons for the Japanese ratings to be downgraded .

Papi, SK's growth rate was higher before, it is worsening rapidly. Japan's growth has been sluggish for a long time.

Papi, SK's growth rate was higher before, it is worsening rapidly. Japan's growth has been sluggish for a long time.

And Japan's public debt is higher than its ever been. Abenomics is working, isn't it?

Thanks GuyJD. Says the article, "Sovereign-credit ratings are barometers of conventional wisdom", also "credit ratings tend to be lagging indicators". The URL itself says virtually the same thing: japan-downgrade-is-sign-raters-are-playing-catch-up

My first utterance on this story? "S&P telling us what what virtually everyone already knew."

Maybe you were one of the odd ones out.

As for his Japan specific claims, such as "Japanese investors view Japanese bonds as the ultimate safe zone", this is baseless.

Take this for example: "I know this could end badly. But if you are in this market, you will have no choice but to buy," http://www.reuters.com/article/2014/04/15/markets-japan-jgb-liquidity-idUSL3N0N72SQ20140415

Or this: http://www.bloomberg.com/news/2014-02-10/japan-triple-selloff-flagged-by-gpif-adviser-turned-ceo.html “The risk of Japan defaulting is not zero, but the million dollar question is whether it’s 10 or 20 years later,” ... “As an investor, if we don’t hold any JGBs, we can’t get a stable return and we would go bust before Japan does.”

Clearly a man who "thinks he is so clever" and is offering only "nonsense".

I've read his articles before, and he generally offers logical and reasoned argument. You might write to him and ask him for some pointers.

But he does come up with some doozies. In a previous Japan default article he argued that no one need worry, because "at the end of the day, Japan would still be standing".

Settles the nerves, doesn't it? Just a garden variety sovereign default in the third biggest economy on the planet, but wake up tomorrow morning and everything will be fine!

I elect to think for myself.

And for some unknown reason, S&P's as well as other so-called credit agencies ratings don't match the real world like interest rates and CDS derivatives.

I see the doomsayers are out in full force once again.

You might write to him and ask him for some pointers.

No, the invitation was for you to write to him and explain to him why he is wrong, as you and jerseyboy so graciously did for me when I said the exact same things. But as I expected, you're not going to for obvious reasons.

Just a garden variety sovereign default in the third biggest economy on the planet, but wake up tomorrow morning and everything will be fine!

You just keep "thinking for yourself" then and lecturing everybody on how your fantasy is inevitable and we must all worry about that ONE DAY when it happens. Eventually even Kyle Bass might be back for another try, and you can invest all your money with him.

GuyJD,

I said the exact same things

You said a lot of things, some of which were the same (the same can be said for myself, as I noted), but a lot of the things you said do not appear to be his views at all, so to write to him and tell him that he is wrong would be nonsensical.

lecturing everybody on how your fantasy is inevitable

I do not claim my "fantasy" is inevitable, but I do not believe the probability of it is zero. I think you'd find Noah Smith doesn't think it is zero-probability either, although I disagree with him on the degree of likelihood and repercussions of such an event. (You may like to write to him and tell him why he is wrong to even entertain the possibility, if that's your thing.)

and we must all worry about that ONE DAY when it happens.

Anyone who doesn't fasten a seat belt when they ride a car is a reckless fool, IMO. You're welcome to disagree.

Also, I would add - that Japan's potential growth rate is low, just hammers home the failure that Abenomics has been. The 3rd arrow reforms, in effective (and actually enacted) should lift the potential growth rate.

Here's a Noah blog (pre-dating BOJ's QQE) in which he suggests a Japan default is likely in 10 years, or taxes get hiked: http://noahpinionblog.blogspot.jp/2012/08/financial-repression-japanese-style_13.html

Of the scenarios he lays out, I can't see the current government defaulting (first 3 scenarios), nor carrying out economic reforms (4th), nor raising taxes (5th) to high enough levels to balance the budget (they have struggled to merely lift sales tax to 10% and may still opt to cancel it), nor eliminating univeral health care (6th), so that leaves only his "hyperinflation" scenario.

It depends on how one defines "hyper", but they are eager to tell people that inflation is good for them, so this scenario seems most plausible to me.

At this point maybe Guy does feel like writing to him to tell him how wrong he is.

fxgai -- spot on as usual. The mods chose to remove my post for being "impolite to others" (LOL) simply beacause I pointed out that Guy had, once again, "stretched" the truth in order to sound so smart. For example, this great writer he heralds is actully just ans ASSISTANT professor, at Stony Brook University. Second, the writer is a free-lance writer and blogger, which we all know is someone just trying to write outrageous things in order to make some money. Third, Bloomberg inserted the following at the end of the article: This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Finally, if you think this guy is so insightful, then you have to agree with all that he says, like:

It is true that Japanese gross domestic product growth has been anemic for the past couple of years. and Japan’s sustainable potential growth rate is almost certainly no more than 1 percent, and might be as low as zero.

In other words, just as you and I have been saying, rant on and on if you want about who owns the Japanese debt, and who dumb ratings agencies supposedly are, that is just a red herring. The irrefutable fact is that Japan's economy is in a state of shambles, and heading for a long, steady decline, and all this spending hasn't changed the fundamentals at all.

I am unconcerned. I guess if people want to buy Korean or Chinese debt, I wish them the best of luck.

With the yen as "low" as it is vs. the dollar and low commodity prices, I would be buying the yen bonds myself. But that's just me.