Japan downgrade adds to developed world woes

DowngradeThe decision by the ratings agency Moody's to downgrade Japan's credit rating from Aa2 to Aa3 strikes another blow to investor confidence in developed markets.

The agency said frequent changes in Japan's administration had hindered the country from creating effective policies for dealing with its budget deficit and the build-up of government debt accumulated since the financial crisis.

Anthony Michael, Aberdeen's head of fixed income for Asia Pacific, said Moody's decision was not surprising. “Indeed this downgrade is unlikely to be the last among so-called developed market countries, the majority of which to varying degrees are suffering from huge deficits,” he said.

Michael added that many of Japan's neighbours in the Asia Pacific region can expect to become more creditworthy in coming years. This contrasts sharply with the outlook for the G7 countries.

“Asian countries stand on the right side of global imbalances,” he said. “Balances of payments are mostly in surplus, foreign exchange reserves are enormous, banking systems are run the old fashioned-way, with deposits in excess of loans, while consumers are savings-rich with low levels of debt, especially low levels of mortgage and credit card debt.”

©2011 funds europe