Japan Vows to Push Fiscal Reform after S&P Downgrade

The one nation that was at least sort of moving towards at least some proactive fiscal expansion may no longer be doing so.

Following through with this would make the yen fundamentally stronger (harder to get).

I singled out David Beers of S and P for criticism only because he does understand the difference between ability to pay and willingness to pay with regard to currency issuers vs currency users.

And Prime Minister Kan’s remarks couldn’t be more out of paradigm:

Japan Vows to Push Fiscal Reform after S&P Downgrade

Japanese leaders vowed on Friday to push ahead with tax reforms needed to rein in bulging public debt, but doubts persisted over whether the government could succeed in the face of a divided parliament.

Rating agency Standard and Poor’s cut Japan’s long-term debt rating on Thursday for the first time since 2002 while the International Monetary Fund had harsh words for Washington and Tokyo, saying they need to act urgently to cut their deficits.

Prime Minister Naoto Kan has made tax and social security reform, including a future rise in the 5 percent sales tax, a priority given the rising costs of Japan’s fast-aging society and a public debt that is the biggest among advanced nations.

“The important thing is to maintain fiscal discipline and ensure market confidence in Japan’s public finances,” Kan, who took over in June as Japan’s fifth premier since 2006, told parliament’s upper house.

But with Kan’s voter support sagging at around 30 percent, opposition parties which control the upper house have shown little inclination to compromise — something S&P highlighted when explaining its reasons for the downgrade.

Kan’s finance minister echoed his stance, saying the government must show its commitment to fiscal discipline, while Deputy Chief Cabinet Secretary Hirohisa Fujii said the government would take S&P’s criticism to heart.

“The Japanese government must humbly take the rating by a leading world ratings agency and further deepen its awareness of the importance of restoring fiscal health,” Fujii, a former finance minister, told a news conference.

Dropping the Ball?

Analysts had said the S&P downgrade could bolster Kan’s campaign for fiscal reform, but the premier initially did little to sell his case, telling reporters after the downgrade was announced that he was “not very familiar with the matter”.

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