Japan downgraded due to high debt levels

Japan, which is over 100% debt to GDP, and has a greater debt load than do any of the PIIGS, can put off their austerity no longer.  Moody's is getting ready for a downgrade, which of course should increase yields and increase their cost of funding, which could lead to a whole credit spiral which engulfed Ireland and Greece. 

The only reason they aren't insolvent yet is because, in spite of having high debt, they have a large asset base of US Treasuries.  Via Moody's:

Moody's Investors Service has today changed the outlook on the Government of Japan's Aa2 rating to negative from stable.

The rating action was prompted by heightened concern that economic and fiscal policies may not prove strong enough to achieve the government's deficit reduction target and contain the inexorable rise in debt, which already is well above levels in other advanced economies. Although a JGB funding crisis is unlikely in the near- to medium-term, pressures could build up over the longer term which should be taken into account in the rating, even at this high end of the scale.

More specifically, factors driving the decision are:

1. The severity and persistence of the shock that the global financial crisis imparted on Japan's government finances and on aggravating pre-existing deflationary pressures,

2. As a result, the current policy framework will not be capable of overcoming hurdles blocking a return to a path of fiscal deficit reduction,

3. Increasing uncertainty over the ability of the ruling and opposition parties to fashion an effective policy reform response to the debt and growth challenges, and

4. Vulnerability inherent in the long-time horizon of Japan's gradual fiscal consolidation strategy to worsening domestic demographic pressures, as well as to possible, renewed shocks in a fragile and uncertain, post-crisis global economic environment.


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