Fiscal target delay would pressure Japan debt rating: Moody's

Japan’s sovereign debt rating will come under downward pressure if its government falls behind on its goal of achieving a primary budget surplus in fiscal 2020,

Japan’s government is due to come up with a new, medium-term fiscal reform plan around June to reassure markets it is committed to fixing its tattered finances, although markets doubt it will include details on how to reduce the country’s huge debt

Look up "kicking the can down the road" in the dictionary, and this will be cited as an example. Japan cannot even see the ability to achieve a primary budget surplus in five years, and has no intention of laying out a plan to show how it will get there. No wonder Anenomics got such a resounding "mandate" it December. I mean it has clearly been an unqualified success.

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A farce on many levels. First, this is the same Moody's that gave AAA ratings to US sub-prime mortgage bonds. Their opinion is therefore worthless. Second, a surplus is by definition government taking more money out of the economy than it injects into it, meaning the private sector (that would be you) is in deficit. And government has no control over whether it runs a surplus or not, that is a function of the economy itself and the private sector's saving and spending decisions. Thinking otherwise is simple financial illiteracy. Third, as Japan is the issuer of the Japanese yen, issuing a raring on its credit worthiness is a 100% pointless exercise. It has zero risk of default or being unable to pay, except in the case of choosing to do so due to stupidity and ignorance of how the financial system actually works. The only reason to issue ratings is to push political and ideological objectives using imaginary financial problems as a justification. So either Moody's is knowingly pushing false economics for political reasons, or Mr. Tom Byrne is a complete and total idiot.

First, this is the same Moody's that gave AAA ratings to US sub-prime mortgage bonds. Their opinion is therefore worthless. Second, a surplus is by definition government taking more money out of the economy than it injects into it, meaning the private sector (that would be you) is in deficit. And government has no control over whether it runs a surplus or not, that is a function of the economy itself and the private sector's saving and spending decisions. Thinking otherwise is simple financial illiteracy.

Guy -- actually it is your response that is the real farce here -- "on many levels". To start, the Moody's sub-prime issue is old news -- like circa 2008. Stop beating a dead horse already, it has no bearing on he subject at hand -- Japan's oppressive debt load. Second, if yoy even knew what a "primary account balance" was, you would know that your entire rant about "surplus", and it "taking more money out of the economy than it injects" is just nonsense. As defined by the OECD, primary account balance (key on the word "balance") is nothing more than:

A federal budget that achieves primary balance has federal revenues equaling spending but with a remaining budget deficit as a result of interest payments on past debt

So, even a neophyte to macro economics can understand that revenues are equaling spending, ex: debt servicing costs, so there is no "taking more monety out" at all -- it is in balance. And, a well-run economy has every ability to project whether it will run a surplus, a balance, or a deficit. You really should avoid using terms like "financial illeteracy".

Countries that succeeded in fiscal consolidation have historically focused on spending cuts rather than tax hikes, he said.

An important pointer for Japan, methinks.

Abe should also get serious about his 3rd arrow growth plans. He's had 2 years in power, you'd think by now he could put his finger on a few regulations he's willing to cut for the sake of, you know, putting some more growth potential into the Japanese economy.

“Probably, the QQE is intended to be a temporary policy. At some point ... there could be unintended consequences,” such as a sharp rise in bond yields, he said.

I'm sure the government will somehow try to engineer a BOJ exit strategy involving public money buying bonds, but indeed it wouldn't be at all surprising should they make a mess of it. Once you're in the quagmire it's hard to get out.

First, this is the same Moody's that gave AAA ratings to US sub-prime mortgage bonds. Their opinion is therefore worthless.

Well no, it's not. They rated those assets too highly. But in Japan's case they haven't rated them at AAA, but A1. If anything, they are still too high.

Second, a surplus is by definition government taking more money out of the economy than it injects into it

Inject is the wrong word. Japan's government "sprays" money at the economy, would be more apt.

And government has no control over whether it runs a surplus or not,

That's a poor excuse to justify the government's consistently planning to spend almost twice the money it takes out of the economy each year.

that is a function of the economy itself and the private sector's saving and spending decisions.

If the economy is going to do it's own thing, then why should the government bother spraying money at it to try to boost it in the first place?

Third, as Japan is the issuer of the Japanese yen, issuing a raring on its credit worthiness is a 100% pointless exercise.

Well no. Zimbabwe was the issuer of the Zimbabwean dollar, and you know what happened in that case.

It has zero risk of default or being unable to pay, except in the case of choosing to do so due to stupidity and ignorance

Or because they succeed in their desired goal of generating inflation, but generate so much of it that they then want to slow it down but cannot, and opt to default rather than continue with runaway inflation.

So either Moody's is knowingly pushing false economics for political reasons, or Mr. Tom Byrne is a complete and total idiot.

Once again, there is an alternative possibility.

"To start, the Moody's sub-prime issue is old news -- like circa 2008"

Indeed, the worst financial disaster in living memory is a completely irrelevant because it happened 6 years ago. LOL.

People who work at the credit rating agencies are the ones who couldn't get jobs on Wall Street. They are not the sharpest tools in the shed. You can spot them in Otemachi or wherever because they're the ones wearing the 30,000 yen suits and scuffed shoes.

Indeed, the worst financial disaster in living memory is a completely irrelevant because it happened 6 years ago. LOL.

Jeff -- Yes, continuing to beat up Moody's on how it rates Japan's finances seven years after the sub-prime fiasco is "irrelevant", and is just a waste of time in an intelligent discussion.

People who work at the credit rating agencies are the ones who couldn't get jobs on Wall Street. They are not the sharpest tools in the shed. You can spot them in Otemachi or wherever because they're the ones wearing the 30,000 yen suits and scuffed shoes.

Really? Then why are you in Japan, and not on Wall Sreet? I guess your situation is different, right?

jerseyboy

Moody's (and other agencies) continue to be paid by the banks and companies they are supposed to rate objectively. If you don't think that represents a, um, conflict of interest, then, well....I have no words for you.

This situation existed before the financial crisis they helped create....and it is true today. How's that for "relevance"?

Additionally, because they pay relatively low compensation, they have trouble attracting analysts and others who fully understand fields they're tasked to evaluate. We have very good reason to be skeptical of their ratings and findings.

http://www.theguardian.com/business/2011/aug/22/ratings-agencies-conflict-of-interest

Well no. Zimbabwe was the issuer of the Zimbabwean dollar, and you know what happened in that case.

The political causes of the Zimbabwe hyperinflation are well understood and have no relevance or applicability to Japan's situation.

And, a well-run economy has every ability to project whether it will run a surplus, a balance, or a deficit.

Then I guess you are saying neither the UK or Australia have well run economies. The governments of both countries have repeatedly claimed and projected that they were going to run surpluses, only to find their deficits in fact increasing following the application of their "surplus generating" policies. The same will happen in Japan as our local crew of incompetent, unqualified politicians and economists with their surplus fetishism get confronted by the realities and feedback effects of a complex system that they don't understand.

Moody's (and other agencies) continue to be paid by the banks and companies they are supposed to rate objectively.

Does that have anything to do with sovereign ratings?

The reasoning for the sovereign ratings is all laid out very clearly. You could always attack them for the elements of the reasoning that you disagree with, rather than for the value of the suits or the tardiness of the shoes that their analysts wear. No?

Personally I think their shortcoming is that they rate Japanese politicians too highly, and these politicians are elected by the public, which leads me to believe there is more risk than Moody's and others let on.

The political causes of the Zimbabwe hyperinflation are well understood and have no relevance or applicability to Japan's situation.

That's fine, and I agree that Japan runs its economy better than Robert Mugabe ran his (although there were probably better things to do in those circumstances than print off "billion Zimbabwe dollar" bills).

My main point is that being able to issue its own currency does not make a sovereign immune to sovereign risk, as that currency's value is not directly controlled by the issuer. They can only control it indirectly, through the prudence of their policies.

The same will happen in Japan as our local crew of incompetent, unqualified politicians and economists with their surplus fetishism

There is no surplus fetishism in Japan. How else would Japan have stolen the crown as most heavily indebted sovereign in the world?

There is no surplus fetishism in Japan. How else would Japan have stolen the crown as most heavily indebted sovereign in the world?

The government of Japan has an official goal and policy objective of running a primary budget surplus by 2020. The article says that right in the first sentence. True, surplus fetishism hasn't always existed in Japan, but that is just because it is a relatively new global phenomenon among our financially illiterate "leaders", economic ignorance of Bill Clinton and his "Clinton surplus" excepted. And now that the fetish has taken root in Japan, it will have the same negative economic effects as it has had everywhere else.

The government of Japan has an official goal and policy objective of running a primary budget surplus by 2020.

They won't meet it though, they'll push it back or water it down. They have been pushing this goal back for years. They always find a reason to indulge in more "stimulus" spending, and never have the political fortitude to reform Japan's social welfare systems, which worked when the population was growing, don't look so sensible now that the population is aging and shrinking.

So I keep my fingers crossed for the resident population that Japan can continue to muddle through, and that the text book notion that deficits can balloon to infinity holds true. I hope you are right, but fear there's a risk that you may not be.

True, surplus fetishism hasn't always existed in Japan, but that is just because it is a relatively new global phenomenon among our financially illiterate "leaders", economic ignorance of Bill Clinton and his "Clinton surplus" excepted.

I think it hasn't always existed because in the past governments haven't been running up such massive scary deficits. The massive deficits are a relatively new phenomenom that the current generation hasn't experienced.

I also postulate that the "negative economic effects" you observe may in fact stem in part from the government attempting to "stimulate" the economies and running up these massive deficits. Too much well-intentioned activity that we might actually be better off without.

"Does that have anything to do with sovereign ratings?"

It depends whether any of Moody's clients are shorting JGBs.