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JPY Daily News
Ignoring Japanese Government Finances
Japanese government finances continue to deteriorate and the debt is now up to 220% of its GDP according to the IMF. So far the Japanese government has taken few steps to relieve this debt burden. One measure being pushed by Prime Minister Noda is a twofold increase of the sales tax by 2015. This is despite opposition from his ruling DPJ party. With Noda's approval rating falling to 31% according to an Asahi newspaper poll. The revolving door of the Prime Minister's office may continue to turn, leaving the budget reforms in doubt.
The failure to reform Japanese public finances has caught the eye of the credit rating agencies, in particular that of S&P who claims Japanese finances are deteriorating by the day. The consistent accumulation of debt is also worrying should interest rate payments continue to rise which could spur a debt crisis in the world's 3rd largest economy should JGB yields begin to increase.
That being said, given the current investment environment where investors are in search for potential safe havens the JPY continues to be a market favorite. With the CHF essentially being removed from the list of safe haven currencies due to the EUR/CHF floor, this leaves the EUR, USD, and GBP. Central banks of the latter two are expected to engage in additional quantitative easing while speculation is increasing for the former. Thus the JPY could see additional strength well into the first half of next year.
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