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U.S., Japan told time running out to deal with debt
IMF warns Japan and United States on need to tackle debt
* Politics make reining in U.S., Japan deficits difficult
* S&P downgrades Japan, sees no strategy to handle debt
* Bond markets calm on Friday, Japan vows fiscal discipline (Adds bullet points)
By Tetsushi Kajimoto and Lesley Wroughton
TOKYO/WASHINGTON, Jan 28 (Reuters) – Japan and the United States faced new pressure to confront their swollen budget deficits as the IMF and rating agencies demanded more evidence they can bring their public debts under control.
The International Monetary Fund said the G7’s two biggest economies needed to spell out credible deficit-cutting plans before the markets lose patience and dump their bonds.
On Friday, Japan’s Prime Minister Naoto Kan vowed to push ahead with tax reforms aimed at curbing the country’s debt, but an uncooperative opposition and divisions within his own party on policy make the chances of success slim.
“The important thing is to maintain fiscal discipline and ensure market confidence in Japan’s public finances,” Kan, who took over in June as Japan’s fifth premier since 2006, told parliament’s upper house.
Ratings agency Standard & Poor’s cut Japan’s long-term debt rating on Thursday for the first time since 2002, and hours later Moody’s Investors Service warned the risk of the United States losing its top AAA rating, although small, was rising. Read more…
Treasury Five-Year Notes Advance as Bernanke Predicts Slow Growth in Jobs
Treasury five-year notes had the first back-to-back weekly gains since October as U.S. payrolls grew less than forecast and Federal Reserve Chairman Ben S. Bernanke said the labor market’s recovery will be gradual.
Yields on the notes touched the lowest level in two weeks yesterday after Labor Department data showed nonfarm payrolls expanded by 103,000 last month, versus a median forecast of 150,000 in a Bloomberg News survey. The Treasury will sell $66 billion in securities next week in the year’s first note and bond auctions.
“The five-year leads the way up, and it leads the way down,” said Brian Edmonds, head of interest-rates at Cantor Fitzgerald LP in New York, one of central bank’s 18 primary dealers. “The Fed chairman is setting expectations back further and making people aware that there aren’t a lot of quick fixes and it’s not going to turn on a dime.”
The yield on the five-year note fell five basis points yesterday, or 0.05 percentage point, to 1.96 percent, from 2.01 percent on Dec. 31, according to BGCantor Market Data. It touched 1.93 percent, the lowest since Dec. 21. The yield hadn’t declined for more than a single week at a time since Oct. 8.
Benchmark 10-year note yields rose three basis points to 3.32 percent, from 3.29 percent at the end of last week. Two- year note yields were little changed at 0.59 percent. Read more…
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