Corliss Online Financial Mag on US Debt of Tokyo investors

Tokyo investors focus on US debt woes

Tokyo investors will stay focused on the US government shutdown next week, as fears grow it could lead to a devastating debt default and strike a huge blow to the global economy.

The Nikkei's 0.94 per cent slip on Friday to a one-month low ended a week that saw the benchmark index lose 4.98 per cent, or 735.76 points, to 14,024.31, as the political deadlock in Washington dominated headlines.

The broader Topix index of all first-section shares fell 4.41 per cent, or 53.70 points, over the week to 1,163.82.

'Players will keep an eye on the US budget stand-off next week,' said Kenzaburo Suwa, strategist with Okasan Securities.

'But we may see an early end to the impasse as (President Barack) Obama appears serious by cancelling key conferences overseas,' Suwa added.

Obama axed plans to attend the Asia Pacific Economic Cooperation (APEC) summit in Bali and the East Asia Summit in Brunei next week, blaming political paralysis in Washington for the cancellation.

While the shutdown has fuelled jitters among investors, analysts have generally expressed even deeper concerns about the October 17 deadline to raise the US debt ceiling.

International Monetary Fund chief Christine Lagarde warned on Thursday that a US failure to raise the borrowing limit could wreak havoc on the global economy, while the Treasury Department said a default could have a 'catastrophic' effect.

On Wall Street, the Dow ended 0.90 per cent lower on Thursday.

'The deleterious effects of the US government shutdown are already being felt,' SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires.

'The deadlock looks as intractable as ever, and investors are continuing to pull funds out of the dollar and risk assets as a precaution,' he said.

Japanese Finance Minister Taro Aso on Friday urged Washington to resolve the budget crisis, warning it could seriously damage the global economy.

'My feeling is ... the debt limit will have an internationally significant impact. Unless it is resolved swiftly, we will see various consequences,' he told reporters in Tokyo.

The situation was likely to stoke more buying of the safe-haven yen, Aso added, pushing up the unit's value. A strong yen is bad for Japanese exporters as it makes them less competitive overseas and shrinks the value of their repatriated overseas income.