Another transition: China overtakes Japan as ‘more trustworthy’ financially. Another hit for Japanese identity.

According to the Weekly Economist (Japanese publication, not the UK one), Japan’s sovereign risk is now estimated to be higher than that of China. In other words, the financial world trusts China more than Japan. That has to hurt.

The insurance premium on Japanese Government bonds rose to .71% in the CDS market as opposed to China’s (.64%) in Jaruary, reflecting the perceived rise in Japan’s sovereign risk. At the same time, major credit rating agency Standard and Poor’s has reappraised Japan’s long-term government bonds down from stable to negative.

This is yet another blow to Japan’s national identity as economic leader of Asia.

The Japanese, and the rest of the world, are waiting for when, not if, China finally overtakes Japan, (as nearly happened last year). Indeed, as Shirashi Takeshi eloquently points out in January’s Chuo Koron, Japan’s politicians are less and less couching Japan’s role in the world as that of an economic leader.

With the partial exception of Koizumi’s general policy speech (Shoshin Hyomei Ensetsu – a set piece annual speech), the most recent Prime Minister’s of Japan have progressively moved from an economic identity for their nation (Keizai Taikoku). In his general policy speech, Abe studiously avoided the economy, talking about an idealized ‘beautiful’ Japan. This shift is also true of Fukuda and Aso. Hatoyama’s policy speech last year also holds to this trend, starting off by stating that Japan can contribute in more areas than the just the economy – and talking even about how Japan needs Asia (not the other way around). His speech was even titled “Japan as a bridge”, i.e. an (in-itself useless) road connecting two places which are (in themselves) important.

It is clear that the transition with China is impacting on Japan’s identity – make a good thesis topic. Eh, Kai?