The Three Reasons Why Moody’s Just Downgraded Japan From Aa3 To A1 | Zero Hedge.
Less than two weeks ago we were delighted to remind S&P that about a year ago, the laughable rating agency which is now terrified of being sued any time it tells the truth, promised it would downgrade Japan the moment things for the insolvent nation turn up to be, well, just as they are with the Bank of Japan now monetizing every yen of Japanese debt issuance. And yet, so far S&P has been very quiet on the downgrade front, most likely because it still has its hands full on the litigation front with the DOJ (and Tim Geithner) for downgrading the US back in 2011. So overnight we were not exactly surprised when that “other” rating agency, Moody’s, shocked the world and headline scanning algos when it downgraded Japan by 1 notch from Aa3 to A1.
Here are the reasons why Moody’s just did what it did, just two weeks ahead of the all-important for Abenomics snap election, in which should support for Abe tumble, then all bets on Abenomics, and the global stock market reflation game, are off.
The key drivers for the downgrade are the following:
- Heightened uncertainty over the achievability of fiscal deficit reduction goals;
- Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and
- In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.
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