Japan’s sovereign risks on par with Korea’s

Japan’s sovereign risks on par with Korea’s

By Kim Tae-gyu Japan’s sovereign credibility has deteriorated to the level of Korea’s in the aftermath of news that the former suffered a trade deficit last year for the first time since 1980. The Korea Center for International Finance (KCIF) presented a report Friday that showed Japan’s credit default swap (CDS) premium for its treasury bonds amounted to 138 basis points as of last month, just 12 basis points lower than Korea’s. The CDS premium measures the credit risks of specific countries or companies. The bigger the figure, the riskier their future. ``The difference of the CDS premium between Korea and Japan was pretty big at 73 basis points in September. But the gap continued to head down to 35 basis points in October and 18 basis points in December,’’ a KCIF official said. ``Last year’s natural disasters, trade deficit and the resultant woes on the possible downgrade of Japan’s credit rating seem to have combined to prompt the difference to shrink.’’ A devastating earthquake damaged exports of the world’s third-largest economy last March while jacking up its dependence on crude oil imports due to shutdowns of the nuclear plants in Fukushima. Accordingly, the export-driven economy jacked up trade deficits for the third consecutive month last December to see its annual shortfall record 2.49 trillion yen (around $32 billion). Its current account balance, which includes flows of not only merchandise but also services and capital, posted a surplus of just 9.63 trillion won ($125 billion) in 2011, down 44 percent from a year ago and a 15-year low. ``Japan’s sovereign debt is about twice its national output, which is way too much. In this climate, its outbound shipments, or the pillar underpinning the economy, is showing signs of being shaken,’’ a Seoul analyst said. ``If the yen remains strong and its exports do not rebound in the near future, it might suffer from a downgrade in its credit rating. Then, its CDS premium might surge beyond that of Korea’s.’’ International ratings companies such as Standard & Poor’s and Fitch Ratings have warned of a possible rating downgrade. Some analysts predict that the downgrade could take place this month at the earliest. ``Because the yen has appreciated against other currencies, the country has lost price competitiveness and things are not likely to improve soon,’’ the analyst said.