From today’s Wall Street Journal: Fitch Ratings delivered a surprise announcement yesterday, downgrading Japan’s sovereign debt rating to A+, a far cry from AAA status. That puts the debt of Japan on a par with Estonia and Malta. Fitch cited Japan’s lack of progress in bringing its massive deficit under control.
“With 93% of the bonds held domestically, there is little chance of a crisis sparked by a flight of international capital as has been seen in countries such as Greece and Spain,” notes the Journal. Moreover, Japan remains the world’s largest creditor nation.
However, Japan’s saving rate has plummeted as its population has aged. Also, investors are willing to accept extraordinarily low interest rates. But foreign investors, to whom the government eventually will have to turn, may not. The national debt has shot way past 225% as a percentage of GDP — twice that of Greece. If interest rates went higher, that debt could quickly become unsustainable. And if the Japanese began liquidating overseas assets, such as their $1 trillion in U.S. Treasuries, their problems could become our problems in a big hurry.
Boomergeddon’s coming. It’s gonna get ugly. Only those who plan ahead will survive intact.