The World Cup may not be the only thing Japan and Korea are sharing, according to a report by Barclays Capital. The British bank is predicting they will also share the same credit rating by 2003.
If anything is likely to shake Japan out of its lethargy, this concept ought to. Japan has long had a superiority complex vis-a-vis its Asian neighbours and none more so than Korea, which it formerly colonized.
Now with Korea beating Japan in many technologies and leading the world in areas such as broadband usage, the shoe is definitely on the other foot. When (and if) the credit ratings reach parity this will be a massive blow to Japan's national pride.
The report states that Korea's public sector balance sheet is much stronger than Japan's, especially thanks to a policy of privatization and fiscal surpluses. Meanwhile the report says: "Japan's public indebtedness is set to rise further from already very high levels due to continued reliance on large budget defecits and significant contingent liabilities in the financial sector and among public corporations."
It continues: "While a high savings rate and a large domestic bond market will allow Japan to maintain very high public indebtedness with a low probability of full-fledged financial crisis, they also remove the incentive to implement painful reforms. Korea, by contrast, has been shocked by a severe systemic crisis which has led to the implementation of far reaching systemic changes.
"The continuation of these trends is expected to lead to further Japan downgrades and further Korea upgrades, so that both countries could well reach the same sovereign ratings by end-2003."
The report does not specify what the rating will be where the two sovereigns reach parity.
In a further dire prediction, the Barclays team state that with the continuance of current trends, "Korea could close the gap with Japan in purchasing power parity per capita income in 10 years."