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Learning to live without guarantees

As the ratings agencies threaten further sovereign downgrades, Japan’s government guaranteed issuers face new challenges. Their government funding is being cut and they must borrow more in their own right. That may bring surprising advantages.


THE DECISION OF Moody's Investors Service to place Japan's sovereign credit ratings on review with negative outlook suggests that the risk of default, however remote, is rising amid growing government debt, economic stagnation and the ineffectiveness of traditional monetary policy. As investors become more concerned, this has had a sometimes surprising impact on the way different classes of Japanese issuers are approaching the debt capital markets.

In the international markets, issues by Japanese government guaranteed issuers (JGGIs) are still being well received. In February this year government-backed issuer Japan Finance Corporation for Municipal Enterprises (JFM) completed its debut issue in the global yen market. At ¥130 billion ($1.04 billion), this was also the largest ever done by a Japanese issuer. The global yen offering was rated Aa1, while JGBs are rated Aa3.

The bonds were issued shortly after Moody's announced in February that it: "will review for possible downgrade the Aa3 rating of yen-denominated domestic securities issued or guaranteed by the government of Japan".

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