WEHRFRITZ: In assailing international rating agencies, aren’t you really just blaming the messenger?
KURODA: No, no, no. You see, we have two complaints about the way ratings agencies [assess] Japanese Government Bonds [JGBs]. One, their principles are not transparent. Two, their ratings are too low. Of course, they provided us with various explanations, but these have not been convincing.
Moody’s warns that Japan’s public debt is entering “uncharted territory” and that its policies are “insufficient” to stop debt from snowballing. Have they overstated the problem?
Yes. The debt-to-GDP ratio is very high [140 percent], that is true. And our budget deficit is 6 percent of GDP, which is large. So we are trying to reduce the deficit and eventually reduce the total amount of debt. We envisage a [balanced budget] by 2010. Thereafter we aim to reduce outstanding debt. If you look at our debt-service payments, you will find that our expenditures are not so big as the debt-to-GDP ratio suggests. They are comparable to the level in Italy.
Isn’t your basic complaint that Moody’s rates Japan a greater sovereign-debt risk than Botswana?
We are concerned about the generally low ratings compared to other developed, as well as developing, countries. We have nothing against Botswana. And we don’t have any intention to reduce our foreign aid to them because ratings agencies were unreasonable enough to reduce Japan’s sovereign-debt rating below Botswana’s.
Do you worry that weak credit ratings will raise Japan’s interest payments?
I don’t see any reason why the real long-term interest rate should rise so dramatically as some have suggested. We continue to have a large–indeed excessive–amount of public savings. Those savings have been financing not only our government deficit but also foreign government deficits for the last 20 years. We will be likely to do so in the coming 10, 20 or 30 years.
People tend to think of our fiscal problems in an imaginary economic context. In the past, all countries with large [government] deficits have also had large [international trade and finance] deficits. Japan is quite unique. Certainly our government is in deficit, but the country as a whole always has a big surplus.
There are people in the market who wonder why you’ve hired actress Norika Fujiwara to promote government bonds. Are you afraid that Japanese individuals and institutions will stop buying government bonds?
I don’t think it’s so serious a matter as you say. Years ago we hired lots of talento, including actresses, in such campaigns, even when our deficit was quite small.
Parliament this week grilled a senior Moody’s analyst over his agency’s downgrade of Japan. Don’t these events suggest fear that a confidence crisis might be brewing?
We have a few concerns. One is that people, both locals and foreigners, tend to regard downgrades as [negative] judgments of the Japanese economy or society. Another is the potential impact on Japanese corporations. Why aren’t Toyota, Honda, Sony and Canon treated as AAA [lowest risk] companies? Because sovereign ratings act as virtual ceilings on corporate ratings so excellent companies are treated unfairly. It’s damaging. And the downgrades were unwarranted. So we protested.
Have the agencies been slow to recognize a turnaround in Japan?
I think so. Sovereign ratings assess the probability of default even though no developed country has ever defaulted. Developing economies, emerging-market economies, even transitional economies like Russia or Argentina have certainly defaulted, but it is not easy to [imagine] a case of a developed country defaulting. In the 1990s Japan’s fiscal situation deteriorated but in 1998 we started cutting expenditures [briefly] and began again last year. That does not mean that default risk increased during the 1990s and recently receded slightly. Japan’s default risk has been zero. Always.
