Japanese Debt Levels at Crisis Point

Japan’s debt levels are under scrutiny and being compared to those of Greece as the new Japanese Prime Minister claims Japanese ‘public finances have become the worst of any developed country’.

Pound Sterling – UK Markets

The Pound has dropped against the Dollar and the Euro so far this morning. The Bank of England announced yesterday that UK interest rates will be kept on hold at a record low of 0.5% for the fifteenth month in a row. The Bank also decided not to inject any more money into the UK economy under its policy of quantitative easing. Nick Clegg, the UK Deputy Prime Minister is due to speak in Madrid today about the effect that the Euro-crisis may have on the UK economy and is expected to label this as the biggest threat to UK recovery. He is likely to emphasise the UK’s commitment to working with the European Union to help rein in deficits.

US Dollar – US Markets

The Dollar and Euro have been volatile overnight with the Dollar making losses although starting to gain again so far this morning. A report today is expected to reveal that US retail sales rose at the slowest pace of the year so far in May. This is linked to the continuing amount of unemployment causing spending to be lower. It is also anticipated however that reports will highlight that consumer confidence will have increased.

Euro – European Markets

The Euro hit a near one-week high against the Dollar and the Yen ending the long stretch of weekly losses as demand increased for riskier assets. This ends the Euro’s longest run of losses against the Yen since its introduction in 1999. The Euro remains weak against the Pound. Reports have emerged today suggesting that a Greek debt default is a matter of time and is a case of ‘when not if’. It has been suggested that the aid packages may delay a Greek default and provide time to Spain and Italy to prevent contagion but that a default is all but inevitable for Greece.

Other Currencies – Highlights

Japan’s new Prime Minister, Naoto Kan, has drawn attention to scale of Japan’s debt which is twice its gross domestic product. He has stated that the Japanese economy could be at ‘risk of collapse’ and that Japan needs a full restructure to avoid a crisis similar to the Greek crisis. The Yen has fallen against the US Dollar overnight.