First – Standard & Poor’s (or S&P) downgraded Japan’s sovereign credit rating.
Japan’s sovereign debt is now rated A+.
The rating was downgraded by one notch from the AA- it held earlier. S&P stated, “Despite showing initial promise, we believe that the government’s economic revival strategy—dubbed ‘Abenomics’—will not be able to reverse this deterioration in the next two to three years.”
With a lowering of credibility in Japan-tracking ETFs – such as the iShares MSCI – Japan (EWJ) and the Wisdom Tree Japan Hedged Equity ETF (DXJ) may become wary of their holdings.
Then we have Japan has fallen back into deflation for the first time in two and a half years.
It’s being seen as a setback to efforts to stimulate the economy.
It comes despite encouraging signs of inflation at home. Core prices excluding food and energy were up by 0.8 percent on a year ago.
But headline prices not including fresh food were down by 0.1 percent in August compared to a year earlier – as the domestic picture was offset by slumping global energy prices.
Lower prices are seen as bad for the wider economy, discouraging spending and investment and pulling down wages.
The figures are a blow to the prime minister, coming just a day after Shinzo Abe pledged to refocus on his ‘Abenomics’ growth project.
Now the Bank of Japan is under increasing pressure to ease monetary policy further, unleashing more stimulus to counter the downturn.
Stupid is as stupid does – Krugman the advisor should hang his head in shame.