Japanese Savers Remain Cool

From the latest Fixed Income Outlook by Societe Generale:

USD JGB CDS indeed widened, but largely as a result of re-pricing of sovereign CDS globally in reaction to the crisis in Europe. Other measures of creditworthiness such as USD JGB ASW have been largely stable and only increased slightly since May 2010 as USD/JPY CCS basis widened amid concerns of USD shortages globally.

Click on chart to enlarge, courtesy of Societe Generale.

And continued:

Risks to consolidation are very substantial, nonetheless. In case fiscal tightening efforts by the current administration are non-credible to Japanese savers, a crisis of confidence is possible.

... we are only likely to see a Japan sovereign crisis if Japanese savers lose confidence in the safety of their ¥ assets. This would manifest itself in capital flight from Japanese banks, higher JGB yields and a wider USD/JPY CCS basis. As such, in a real sovereign credit crisis we would expect convergence between JGB USD CDS and JGB USD ASW.

Watch China?