Japan govt bonds riskier than frontier markets, says BlackRock

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Japanese government bonds have become riskier than where they were in the third quarter of 2012 despite a change in leadership and aggressive economic policies.

That is according to the BlackRock Sovereign Risk Index (BSRI) published on Tuesday, which compares the investment profile of the government bonds of 48 different countries.

In the December 2012 edition of the BSRI country rankings, Japan was the most notable faller picked out by BlackRock and it said the country’s government bonds were now riskier than those of Indonesia and Turkey.

‘Japan’s public debt burden – the highest in the developed world in relation to GDP - keeps growing. The market is expecting more fiscal stimulus from the incoming government and looser monetary policy from a new central bank chief to be appointed in April,’ BlackRock said.

The report did state newly-elected Prime Minister Shinzo Abe could foster a more positive environment for equity investment in the future, given his focus on weakening the country’s currency and inflating away debt.

Elsewhere in the rankings, China, Australia and New Zealand were among the only nations to show signs of improvement between the third and fourth quarter rankings.

China rose two places to 16th based on an increased level of government revenues as a percentage of GDP and an improved score on the ‘Willingness to Pay’ metric. This, BlackRock said, was due to a relative smooth transition at the top of the ruling party in November 2012.

Despite the political dysfunction seen in the United States, the country's ranking remained unchanged at 15th place in BlackRock's list. It suggested the stability of the government had not been impacted by an impasse in dealing with its debt ceiling.

‘Willingness to Pay also measures perception of government’s stability, the rule of law and other factors that foster a favourable investment climate,’ it said.

‘For all the political drama during the debt ceiling crisis in 2012, the 2012 presidential election campaign and the recent fiscal cliff negotiations, the US score in this area has held steady since the summer of 2011.’

According to the December 2012 BSRI, the least risky government bond is that of Norway, while Greece sits in 48th place.