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Investing

Fitch Cuts Japan To “A+”

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By Douglas A. McIntyre Published

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Credit rating agency, Fitch Ratings, cut Japan’s sovereign ratings to “A+”, and posted its outlook as “negative.” It is one in a long line of downgrades in the ratings of large developed nations. The announcement not only undermines faith in a rapid economic recovery in the old order which used to include the US, Europe, and Japan. Japan may not be effected much, at least in its ability to raise money on preferential terms. As the economic and financial situation in the EU worsens, there are limited investment options for global capital markets investors. This has kept US Treasuries yields at all-time lows, despite a cut it it AAA rating by S&P last August. Fitch wrote about the Asian nation:

Japan’s gross general government debt is projected to hit 239% of GDP by end-2012, by far the highest for any Fitch-rated sovereign. This debt ratio would also have risen 61pp since the global financial crisis. This compares with a median of 39pp for OECD economies and 8pp for ‘A’ range sovereigns. Japan is less of an outlier when account is taken of its large pile of sovereign financial assets (worth about 80% of GDP on Fitch’s calculations), but net indebtedness is still rising strongly.

Japan’s Fiscal Management Strategy envisages declines in the government debt/GDP ratio only from FY21. Fitch regards this as a slow pace of consolidation given the scale of Japan’s debt. Moreover, Japan’s consolidation strategy is subject to political risk. The government’s key revenue-raising plan is to hike the consumption tax to 10% by FY15 from 5% now. The measure is back-loaded (planned to start in FY14) and remains highly politically controversial.

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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