13 February 2002, 09:30 Moody's Japan review to have more political than financial impact - CSFB
TOKYO (AFX-ASIA) - Credit Suisse First Boston head of credit
research Yoshio Shima said Moody's decision to review its Japan rating
may have more of a political than a financial impact as the opposition
is liable to use it to attack the government.
The agency said it may downgrade the Aa3 rating by as much as two
notches, adding that deflation is exacerbating the government's serious
debt problem.
"The longer it takes for the government to fashion an effective
policy response to deflation, the more complicated solving other
economic problems becomes," Moody's said.
However, CSFB's Shima said the reformist cabinet of Prime Minister
Junichiro Koizumi may face increased opposition as a result of the move
after a recent slump in popularity and rising opposition from
conservatives.
"I think in the interest rate market, many people are concerned
that interest rates will rise and this (possible) downgrading is a
factor," he said.
However, "it won't have a big impact on interest rates because many
participants in the financial markets understand that they have nothing
other than government bonds that they can buy," Shima said.
"So I expect more of a political impact than an economic one," he
said.
"The opposition parties can take that news and attack the Koizumi
cabinet as the financial markets are saying no to the Koizumi cabinet,"
he said.
Shima said the only way to tackle deflation is to increase monetary
expansion, though the Bank of Japan remains resistant to such a move.
"I think that what's really necessary is a change at the Bank of
Japan," he said, adding that the bank should introduce some kind of
inflation targeting.
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