What is the best-performing Asian sovereign credit default swap this year? Not some thrusting emerging market but ancient, sclerotic Japan. The cost of protecting five-year Japanese government bonds against default has fallen more than a fifth since January, while almost every other country across Asia has gone the other way.
You could argue that this is not much of an indicator. Japan borrows in its own currency and sells most of its Y992tn ($10tn) debt to domestic institutions with a strong home bias. As such, the bond market has tended to shrug off the views of outsiders, such as credit rating agencies. Why does it matter what a few CDS traders think of the government’s ability to pay its bills?
Still, for a country running the rich world’s biggest fiscal deficit and the highest ratio of debt-to-gross domestic product, the move means something.