Nomura Holdings Inc. says the probability that Prime Minister Shinzo Abe's economic policies will end badly is increasing.
The worst-case scenario for Toshihiro Uomoto, the company's chief credit strategist, to the end of 2017: the economy contracts in the first half of 2016, Abe delays a sales tax rise for a second time, and the Bank of Japan boosts asset purchases to suppress interest rates, causing the yen to tumble. This month, he raised the probability of these events unfolding to 10 percent to 20 percent or more, from about 10 percent.
"Signs are mounting that Japan's fiscal sustainability is beginning to crumble," said Uomoto, ranked Japan's No. 1 credit analyst for the past two years by Nikkei Veritas. Uomoto said Monday by phone that the drop in oil prices makes tapering by the BOJ more unlikely, prompting him to change the weightings for his three credit scenarios for Japan as a result.
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