Japan's downgrade by Moody's is not surprising given the country's fiscal position. And while this move is unlikely to move Japan's domestic markets significantly, following on from the recent S&P downgrade of the United States and growing concerns over the fiscal state of larger European nations such as Italy, Spain and more recently France, this move is likely to continue to add to investor concerns over the state of the developed world's sovereign finances. Indeed this downgrade is unlikely to be the last among so-called developed market countries, the majority of which to varying degrees are suffering from huge deficits. In contrast the credit worthiness of many of Japan's neighbours in the Asia Pacific region are likely to continue to improve over the coming years.
"Today Asian countries stand on the right side of global imbalances. Balances of payments are mostly in surplus, foreign exchange reserves are enormous, banking systems are run the old fashioned-way, with deposits in excess of loans, while consumers are savings-rich with low levels of debt, especially low levels of mortgage and credit card debt. This is the complete opposite of what the indebted G7 countries face."
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