SEOUL, March 18 (Yonhap) -- South Korea's credit default risk is expected to stay higher than that of Japan for some time, as the Japanese economy is forecast to make a recovery with its currency likely to further weaken, a report showed Monday.
According to the report by the Korea Center for International Finance (KCIF), the credit default swap (CDS) premium of Japan has dropped as the Japanese yen has depreciated against the U.S. dollar, on expectations of an economic boost by Prime Minister Shinzo Abe.
The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A steep rise indicates a deterioration in the credit of government bonds and higher costs for bond issuances.
The CDS premium for Seoul's benchmark five-year Treasuries had hovered below that of Japan from mid-September last year until early this month. But as of March 6, Japan's CDS premium has fallen to 62 basis points, 2 basis points lower than that of Korea, the report said. A basis point is 0.01 percentage point.
The fall of Japan's sovereign risk premium came as the country has begun to show signs of recovery since its government decided to fuel the economy through monetary easing.
Japan's benchmark Nikkei average spiked around 30 percent this year compared with the end of last year, with its currency depreciation giving a boost to the export sector.
Major investment banks predicted Japan would grow 2-3 percent in the second quarter of this year on the back of stimulus measures and the yen could further fall against the dollar to as low as 100 yen, the report said.
If the Japanese stock market continues to rally, with the currency continuing its weakening streak, Tokyo's sovereign risk premium will likely stay lower than that of Seoul for some time, according to the KCIF.
<All rights reserved by Yonhap News Agency>