FXStreet (Barcelona) – Masaki Kuwahara, Economist at Nomura, doesn’t see a large impact resulting out of the Greek ‘No’ vote on the Japanese Economy, and further explains that a large-scale global financial crisis would be avoidable even after a Grexit.
Key Quotes
“On 5 July, Greece held a referendum to determine the view of the Greek electorate on fiscal austerity measures. As of the writing of this report, the result is nearly confirmed at “no”. While the vote does not mean Greece will immediately default on its debt, we think it considerably reduces visibility on the country’s future. We think the start of this week in the financial markets will likely be characterized by a risk-off mood.”
Little direct connection between Japan’s and Greece’s economies
“Japanese exports to and imports from Greece each account for less than 0.1% of Japan’s respective totals. Furthermore, according to the Bank for International Settlements (BIS), Japan’s financial institutions have only about ¥37bn in exposure to Greek debt, and even if these holdings became worthless, the financial institutions should easily be able to cover their losses with annual profits. Even if Greece were to default on its debt and eventually have to leave the euro, we think the direct impact on the Japanese economy would be limited.”
“In addition, since the euro crisis of 2011-12, private-sector exposure to Greek debt has declined sharply. As a result, we think the chances have fallen dramatically of a Greek default triggering a global financial crisis, as had once been feared.”
Low visibility, but eventual impact on Japan’s economy likely to be small
“Regardless of the size of the impact, it’s impossible to tell exactly what all the implications of a Greek default or Grexit would be, and this uncertainty remains an issue. In particular, if the situation in Greece were to lead to crises in Italy or Spain, a credit crunch might spread globally in reaction to the heightened uncertainty.”
“That said, measures in place to limit the spread of financial crisis—safeguards such as the European Stability Mechanism (ESM) and the European Central Bank’s outright monetary transactions (OMT)—are far more substantial than in the past. With these measures brought to bear on the situation, a large-scale financial crisis should be avoidable.”
“If a risk-off mood were to persist in financial markets, the impact of yen strength and weak stock prices on the Japanese economy would become a factor. Regardless, the eventual impact on Japan’s economy is likely to be small.”
(Market News Provided by FXstreet)