Moody's Cuts Japan's Rating One Notch to Aa3; Cites Weak Gov't, Overwhelming Debt
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The Japan ETF, iShares MSCI Japan Index (NYSE: EWJ), is trading lower Wednesday following a Moody's downgrade of Japan.
Lowering it's rating on Japan from Aa2 to Aa3, Moody's cites Japan's "revolving-door" government leading to slow fiscal reform and it's build-up of debt since the 2009 global recession. Japan is fixing to elect it's sixth leader in five years with the pending departure of unpopular Prime Minister Naoto Kan.
Kan was criticized for his handling of the March 11th earthquake disaster, and subsequent fallout from nuclear reactor damage to poor public relations.
Further, Japan's debt situation is far beyond the global average; the IMF puts Japan's expected debt-to-GDP at 233 percent for 2011, compared with 181 percent expected by Japan's Cabinet Office. Notably, Moody's states it sees no plan or plans by the IMF or Japan's Cabinet Office which would curb the debt burden over the next decade.
Japan's downgrade -- it's first since 2002 -- now puts it on par with China.
Moody's issued a warning in May it might downgrade Japan, so the move is of little surprise. Conditions in the nation haven't improved dramatically as it works to sort out the March 11th disaster, and economic growth has been rather flat globally (though China and India have both reported increases).
The iShares MSCI Japan Index ETF is down about 1.8 percent early Wednesday.
Lowering it's rating on Japan from Aa2 to Aa3, Moody's cites Japan's "revolving-door" government leading to slow fiscal reform and it's build-up of debt since the 2009 global recession. Japan is fixing to elect it's sixth leader in five years with the pending departure of unpopular Prime Minister Naoto Kan.
Kan was criticized for his handling of the March 11th earthquake disaster, and subsequent fallout from nuclear reactor damage to poor public relations.
Further, Japan's debt situation is far beyond the global average; the IMF puts Japan's expected debt-to-GDP at 233 percent for 2011, compared with 181 percent expected by Japan's Cabinet Office. Notably, Moody's states it sees no plan or plans by the IMF or Japan's Cabinet Office which would curb the debt burden over the next decade.
Japan's downgrade -- it's first since 2002 -- now puts it on par with China.
Moody's issued a warning in May it might downgrade Japan, so the move is of little surprise. Conditions in the nation haven't improved dramatically as it works to sort out the March 11th disaster, and economic growth has been rather flat globally (though China and India have both reported increases).
The iShares MSCI Japan Index ETF is down about 1.8 percent early Wednesday.
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