Japan to face big fund shortage in 2011/12

08:36, March 25, 2010      

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Japan's government may need to issue more bonds or drop some spending plans as it faces a shortage of up to 7 trillion yen ($78 billion) in funds in the year to March 2012, the Nikkei newspaper reported.

An increase in bond issuance would raise the specter of a cut in Japan's sovereign ratings as the national debt is nearing 200 percent of its GDP, analysts say.

Fitch, Moody's and Standard and Poor's have all warned Japan it faces a ratings down-grade, which could raise the borrowing costs for the most indebted of the industrialized nations and rattle investors who are already nervous about Greece's debt and the sovereign risk facing other EU nations.

The government will announce a long-term fiscal policy framework and a fiscal disci-pline target in June.
A legally binding framework is one possibility, Finance Minister Naoto Kan told lawmakers in parliament Tuesday.

Apart from a planned record 44 trillion yen ($487 billion) new bonds issue for the business year beginning in April, the government may need to issue even more in the following year as it faces a 6 to 7 trillion yen fund shortage while tax revenues shrink, the Nikkei said.

"That (fiscal framework) could be the trigger for a downgrade if it doesn't go well," said Nobuto Yamazaki, executive fund manager at DIAM Asset Management in Tokyo. "There is also the possibility the government will alter its campaign pledges, because even the general public accepts that some of what the government is promising are unrealistic."

Source: Global Times
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