Japan’s Fiscal Death is a Warning To The West !
- Japan’s fiscal death is a warning to the West!
By Ambrose Evans-Pritchard, http://www.telegraph.co.uk/
Fitch Ratings has downgraded Japan two notches to A+, citing a surge in public debt since the Lehman crisis and the lack of any plan to restore fiscal probity.
Key indicators are deteriorating on almost every front, raising concerns that the world’s third largest economy is running aground after two “Lost Decades”.
Japan’s debt has jumped by 61 percentage points of GDP since 2008, compared to eight points for the AAA bloc. Public debt is expected to reach 239pc of GDP this year, uncharted levels for a major economy in peace-time. `Net debt’ –subtracting Japan’s vast holdings of foreign bonds – is nearer 137pc but this is rising at an even steeper trajectory.
“Japan’s addiction to public sector spending is way beyond the boundaries or remedial `austerity’,” said Dylan Grice from Societe Generale. “Political pressure on the Bank of Japan to crank the printing presses into top gear will become irresistible. We see no alternative.”
Japan has been even more nonchalant than the US in efforts to rein in spending. The budget deficit will remain above 7pc of GDP late into the decade. Fitch said the pace of fiscal consolidation is “leisurely” and prone to “political risk”. Plans to raise VAT from 5pc to 10pc face a battle in the Diet.
Japan still enjoys “exceptional financing flexibility” but is vulnerable to shocks. Even a small rise in borrowing costs would play havoc.
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