S&P Cuts Japan Debt Rating to AA Minus

David Beers at S and P knows better and should be ashamed of himself and his organization for not making it crystal clear that ‘ability to pay’ is not in question, and that downgrading Japan has to be based solely on their assessment of ‘willingness to pay.’

Also note that even with repeated downgrades the term structure of risk free rates remains a function of market perceptions of where the BOJ will set rates down the road, along with a few ‘technicals’ of supply and demand.

S&P Cuts Japan Debt Rating to AA Minus
Published: Thursday, 27 Jan 2011 | 4:02 AM ET
By: Reuters

Ratings agency Standard & Poor’s cut Japan’s sovereign debt rating to AA minus from AA on Thursday, warning that Japan’s government debt ratio would continue to rise more than it had previously expected.

The agency said it expects Japan’s fiscal deficits to remain high in the next few years, which would further reduce the government’s already weak fiscal flexibility.

The outlook on the long-term rating was stable, it said, reflecting its view that Japan’s strong external balance sheet and monetary flexibility partially offset the pressures stemming from the fiscal side.

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14 Responses to S&P Cuts Japan Debt Rating to AA Minus

  1. roger erickson says:

    Hey, China is fighting back with their own Court Jesters. It’s virtual Clown Warfare, in a fiat arena.

    “Dagong has downgraded the local and foreign currency long term sovereign credit
    rating of the United States of America (hereinafter referred to as “United States” ) from
    “AA” to “A+“, which reflects its deteriorating debt repayment capability and drastic decline
    of the government’s intention of debt repayment.”
    Surely they don’t doubt Geithner’s intentions!! (Jeez, if they find out, please tell us!)

    “Debt Financing Needs of Governments in Developed Debtor Countries”
    supposedly, they last rated the USA as Aa2; still ahead of Japan at Aa3

    We may all rest easy now.

    Except for this: “The United States, the world’s largest debtor country used the US Dollar
    to distribute the output of debt, and waged a global credit warfare.”

    They must be referring to Bernanke’s currency swaps?


    beowulf Reply:

    I guess they didn’t get the memo that Federal Reserve is financially and politically independent. Or maybe they’re right and its leaders in our country that haven’t gotten the memo that Fed is part of the govt sector. :o)


  2. SethM says:

    News like this makes my head hurt. Is this for real or are all of us here missing something? Does the wider world really 100% believe that there is a risk of Japan defaulting on its obligations? Seems impossible to me, but I’ve been wrong before.


  3. GLH says:

    If the ratings agency would really go up against the Japanese government wouldn’t it be a good thing? It seems that after a while it would prove once and for all that a real sovereign government isn’t a slave to the bond market. Then, maybe John Boner could quit crying about the government being busted.


    Adam Reply:

    I agree. Who cares what the ratings agency says about sovereign debt. Since we all know that MMT is correct, these ratings could bankrupt the rating agencies. Ironic, no?


    Tom Hickey Reply:

    Where the rating agencies get into difficulty is wrt relative standing. How can Japanese debt be worth less than EZ debt when there is no possibility of involuntary default in the case of the former and there is in the case of the latter. Doesn’t make sense, unless the rating itself results in the problem it is supposedly foreseeing.


    Jim Baird Reply:

    You’d think so, but the agencies have been downgrading Japan for 20 years now, rates have continued to go down, and Japan shows no signs of defaulting, but they still are taken seriously. The Reckoning must come eventually, they say – it MUST!

    When people have a theory they think explains the world, no amount of data to the contrary will convince them otherwise.



    hopefully the reckoning comes for the agencies, and very soon


    roger erickson Reply:

    Don’t hold your breath. Remember Japan back in 1998 & 2000 when:

    Finance Minister Hikaru Matsunaga termed as ”incomprehensible” news that U.S. credit-rating agency Moody’s Investors Service may downgrade Japan’s long-term government bond ratings.

    Finance Minister, Kiichi Miyazawa, in 2000 dismissed Moody’s downgrade of Japan’s ratings at that time as “nonsense”.

    Susumu Takahashi, head of research at the Japan Research Institute at the time, said, “Moody’s judgment is logical.”

    One of the “13 Ways to Deny Truth” is to see if you can get away with simply ignoring it.

    Churchill had a quote about it.

  4. Ramanan says:

    Not related to the post.

    The Financial Crisis Inquiry Commission released a report today about the crisis


    and and the full report at http://www.fcic.gov/report/


  5. wh10 says:

    Warren or anyone else,

    Do you have any idea what models ratings agencies are using to rate sovereign debt??? What are they basing their decisions on? Are they ignoring reality and using false models that act as if the government can default? If they are, how are they feigning such a scenario??

    Or do you think they could be viewing things from an MMT perspective and downgrading the debt on some sort of inflation/hyperinflation risk?

    Or do you think they’re basing this downgrade on purely qualitative reasoning?

    An insider answer would be great. It just baffles me. But there has to be a real answer.



  6. Tom Hickey says:

    I think we have to begin asking why ratings agencies suddenly “got religion” and are knocking down ratings of risk-free assets, or threatening to, when they persisted in giving junk triple A ratings and maintaining these ratings long past the time it was reasonable — especially when in both cases they know better. What is the agenda here and who is driving it?


  7. macrosam says:

    May actually help Japan concerning currency devaluation, albeit doesn’t look like it’s doing too much this morning.

    Warren, this is unrelated to the topic, but what is your take on the Treasury scaling the SFP Program down to $5 billion? Less of a reserve drain meaning more excess reserves, meaning downward pressure on effective Fed Funds?


  8. danw says:

    I find it amusing that “ratings” agencies such as S&P have any legitimacy whatsoever. We KNOW that these agencies were bribed by the TBTF banks into fraudulently rating MBS’s and CDO’s. We KNOW that the “Market makers” and the ratings agencies conspire to, well, make markets…markets that benefit the insider and front-runner. Why these ratings mean ANYTHING—other than as a signal that the market makers are looking for the newest and best short, is beyond me.


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