Tokyo Ignored Japan Debt Downgrade, Bond Yield Stable

Nigel Thomas
24 Aug, 2011
New York City

Stocks in Japan turned lower as the yen traded near record high and the government announced new measures to support exports. Investors ignored a rating downgrade of the Japanese government debt by one notch. The ruling party is expected to select a new prime minister at the end of this month.

[R]7:30 PM Tokyo – Stocks in Japan turned lower as the yen traded near record high and the government announced new measures to support exports. Investors ignored a rating downgrade of the Japanese government debt by one notch. The ruling party is expected to select a new prime minister at the end of this month.[/R]

Stocks in Japan declined after rising for two days as Prime Minister Naoto Kan prepares to step down at the end of the month. The government offered additional measures to weaken the yen as the yen trades near record high and is likely to strengthen more in the months ahead.

Separately, Moody’s Investors Services lowered Japan’s debt by one notch from Aa2 and awarded its fourth highest rating of Aa3. The rating agency action follows an earlier downgrade by Standard & Poor’s to lower the debt to AA from its highest rating AAA in January.

Moody’s cited rising and large budget deficit, frequent changes in administration and weak prospect of economic recovery. The recent triple disaster has distracted the Japanese government to focus on the clean up and providing economic stimulus and not on making structural changes to the economy.

Japan’s debt to gross domestic product ratio is expected to soar to highest in the world of 220% in the next fiscal year as the disaster delays any economic recovery.

The yen edged lower to 76.55 from 76.27 in volatile trading but on low volume as the government announced more measures to weaken the yen.

Finance Minister Yoshihiko Noda proposed $100 billion credit facility to Japanese exporters as the yen surges to a 25-yer high.

Investors largely ignored the rating downgrade and do not foresee any problem for the government to raise funds in the domestic market. The yield on the 10-year government bonds was largely unchanged and hovered near the record low of 1.01%.

The Nikkei 225 Stock Average declined 1.1% to 8,639.61 and the broader Topix index fell 1.1% to 742.24.

Stock Movers

Banks were in focus after a rating downgrade of the Japanese government debt. The stocks declined on the psychological impacts but are expected to recover as the market was anticipating the downgrade.

Mitsubishi UFJ Financial Group declined 2.9% to 333 yen and Sumitomo Mitsui Financial Group dropped 1.8% to 2,170 yen.

Energy linked companies traded higher after crude oil in New York gained as Libya struggles to resume oil export.

Inpex Corp increased 1.2% to 475,000 yen and Japan Petroleum Exploration Co added 1.7%.

Automakers and exporters traded active after finance minister offered a credit facility to exporters of $100 billion.

Toyota Motor decreased 1.6% to 2,718 yen and Honda Motor Co. added 3.4% to 2,624 yen.

Sony Corp fell 2.9% to 1,549 yen and Nikon Inc increased 7 yen to 1,669 yen. Canon Inc fell 20 yen to 3,580 yen.

Murata Manufacturing fell 2% to 4,435 yen, Nintendo fell 5% to 12,430 and Omron decreased 0.2% to 1,662 yen.

Dai-Ichi Life Insurance Co. fell 0.8% to 87,100 yen.