Japan’s Lost Decade Continues on S&P Downgrade

By Yoshinobu Watanabe, Waymark Japan

Published March 21, 2010

This has become the first signal of lingering concern about Japanese borrowing in the months since investors started to raise questions about the sustainability of government debt (did I hear someone say America?...) which some estimates suggest will equal the country’s GDP for the fiscal year which in Japan ends in March. This would make it the highest in the entire industrialized world. It further implies that there is still minimal confidence for the new administration of Prime Minister Yukio Hatoyama. The brief hopefulness of all citizens that a genuine set of reforms would jump-start Japan’s long-stagnant economy seems dashed.

A focus on social spending coupled with an apparent lack of real concern for Japan’s incessant borrowing, constitute the stated reasons for the credit rating undulations from AA+ in 2001, to AA- during 2003-2007, now resting uncomfortably at a mediocre AA rating. The AA+ to AAA is the highest credit rating. The policies of the DPJ Party (Democratic Party of Japan) are seen as the overall governance culprit. It is widely seen as a warning of clear negatives implications for the entire Japanese economy and global investment support.

The Japanese currency, the Yen, as well as bond prices, have been illustrating this continuing concern. As one might expect official commentary has been restricted by government officials as they sort out ways to clean up the books and find resolution to the problem long term. It is hoped that a new set of policy measures will be in place by June of 2009. Japanese debt is well over $6 trillion, and while Tokyo remains far off from a default, the strength in Japan’s finances and status as the world’s largest creditor holding massive foreign reserves cannot mask the current situation for their economy in the long run. The threat of a new recession lingers once again. New stimulus bills and extremely low interest rates within the Bank of Japan have done little to thwart spending and simply continue to dull hard-to-find growth measures. National consumption taxation has been suggested, a tactic used in the 1990s to reduce debt, but ultimately drove any prospect of growth down the drain – coupled with the real estate and stock market implosions – at that time.