Tatiana Kashyrskaia
On August 24th Moody’s downgraded Japan’s credit rating down to Аа3 (one level down). Later the rating agency cut the ratings of Japan’s 3 leading banks.
What are the consequences?
According to the experts of , first of all the rating cut affected Japanese-T-bonds, thus making them riskier assets. Though the forecast remained “stable” as the Japanese securities are popular among investors.
· According to the statement released by Moody’, the reasons for the rating cut were Japan’s huge budget deficit and considerable public debt (over 200% of the GDP or $12 trillion). Japan now cannot service its debt properly because it still needs to overcome to consequences of March’s disasters.
· Moody’s also stated that Japan has no distinct economic course, which is (according to some experts) the consequence of frequent change of power.
· Japan is now getting ready for the 6th elections of the prime minister within 5 years. All the sectors of the Japanese economy are in decline and need financial support to avoid a crisis.
According to the analysts for Mig Bank, Japan’s key banking groups - Mitsubishi UFJ and Sumitomo Mitsui – also got their credit ratings cut from Aа2 down to Aa3. Mizuho’s rating was cut from Aa3 down to А1. According to Moody’s, the reason is that Japan’s banking sector is limited in its support of the government.
Most Asian markets instantly reacted to the breaking news:
· Nikkei 225 lost 2%
· The Japanese Yen declined by 0.3% against the US Dollar
· The overall decline in the Asian markets varied from 0,1 to 2%
· Hang Seng lost 2.06%, reaching 19 466,79. KOSPI declined by 1.23% (1 754,78).
· SSE Composite dropped by 0.51% down to 2 541,09.
The stocks of Mitsubishi UFJ lost 2,9%, Sumitomo Mitsui - 1,8% ,Mizuho - 0,9%.
What other threats may Japan face as the result of the rating cut?
The Vice President and Senior Analyst of Moody’s Tom Byrne said that the agency was not going to reconsider Japan’s rating within the next 12-18 months. According to him, Japan’s economy will have to grow by 3% every year in order to be able to service the country’s debt. Tax hikes won’t be enough to solve the problem. Moreover, Japan’s exporters keep being affected by the strong national currency. However Byrne assumes that the prospect is not hopeless.
The forecast is stable, which means that Japan’s T-bonds will keep helping the government to finance the budget deficit at the world’s lowest nominal rates, especially as the rating cut hardly surprised anyone. That is why the market reaction is and will be fairly reserved.
According to the latest GDP data from Japan, the country’s economy starts reviving. So there are reasons to expect a minor increase in Q3 2011. In the meantime S & P and Fitch keep Japan’s rating at AA-, with a negative forecast.
USDJPY prospects:
According to the Department of Masterforex-V trading system , USDJPY keeps forming a long-term downswing – wave A(C ) of Weekly. The closest possible levels of resistance are 75.944 and 75,36.
Any recovery can be considered only after the price breaks above the MF pivot and sloping channel and creates an upswing.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum form traders and investors and answer the following question:
What threats and consequences may investors face as the result of the rating cut?
Tatiana Kashyrskaia
