Politics in Japan

Here are some of the recent headlines coming out of Japan, none of which bode well for this economic giant.

On August 24, Moody's announced that it would downgrade Japan's sovereign credit rating from Aa2 to Aa3.  Here is the press release: Moody's lowers Japan's government rating to Aa3; outlook stable

Moody's cited Japan's huge national debt (around 200% of GDP) and projections that the budget deficits of at least 7% of GDP will continue until at least 2015.  They noted that Japan's recovery from the 2009 financial crisis had been delayed by the March 2011 earthquake and tsunami.

On August 26, Japan's Prime Minister Naoto Kan announced that he would resign, after just 15 months in office, making him the sixth Japanese PM to resign in 5 years.  His approval rating had dropped to the mid-teens, largely based on his handling of the March natural disaster.  Here is the New York Times article: Prime Minister’s Departure Underscores Japan’s Search for Leadership, by Martin Fackler.  Also in The Economist: Politics in Japan: Sixth Time Lucky?

Tomorrow, August 29, the ruling Democratic Party of Japan will have a "leadership vote" to determine Prime Minister Kan's successor.  (Wall Street Journal Article: Japan Race Narrows as DPJ Prepares for Vote, by George Nishiyama and Hiroyuki Cachi.)  Two favorites have emerged: Seiji Maehara, a former foreign minister, and Banri Kaieda, the trade minister.  Kaieda is favored by much-hated (but politically influential) DPJ king-maker Ochiro Ozawa, so may have a better chance of getting the job.   In Japan the view seems to be that most of these politicians are the same, and it does not really matter who gets picked.

The Nikkei 225 stock index is down to levels seen just after the earthquake.  But paradoxically the yen is stronger than ever, and Japan is able to borrow money for 10 years at just over 1%.  I don't pretend to understand it.