Moody's downgrades Japan's debt rating

张运兴
Xinhua, August 24, 2011

Moody's Investors Service Inc. on Tuesday lowered its outlook on Japan's sovereign debt to "negative " from "stable."

The ratings agency also warned it may cut Japan's credit rating, citing concerns about the government's policies to manage the nation's monumental public debt.

"The rating action was prompted by heightened concern that economic and fiscal policies may not prove strong enough to achieve the government's deficit reduction target and contain the inexorable rise in debt, which already is well above levels in other advanced economies," Moody's said.

Moody's assigned Japan a rating of Aa2, the third highest, for the nation's sovereign debt. It last cut the rating on Japan in 2002 to A2 before raising it three times to the current level.

Japanese Prime Minister and leader of the ruling Democratic Party of Japan (DPJ) Naoto Kan, who is already facing all-time low public support rates, will now be under increasing pressure as he faces a potential legislative gridlock in his pursuit of passing a record 92.4 trillion yen (1.1 trillion U.S. dollars) budget for fiscal 2011 starting April through a divided parliament.

"There is increasing uncertainty over the ability of the ruling and opposition parties to fashion an effective policy reform response to the debt and growth challenges," the ratings agency said.

Kan has failed to garner the support of opposition parties on issues of social welfare and tax reforms, including the controversial proposal to raise the consumption tax rate from the current 5 percent.

Not only has Kan, who took office last June as Japan's fifth prime minister since 2006, not managed to curry favor from the opposition bloc, but there are calls for him to call a snap election or risk having budget-related bills blocked in the opposition-controlled House of Councillors.

Japan has the world's largest debt in the industrialized world, amounting to approximately 200 percent of the country's GDP, or around 5 trillion U.S. dollars.

Last month Standard & Poor's rating agency cut Japan's credit rating for the first time since 2002, saying the government lacked a "coherent" strategy to ease its ballooning debts.

However, analysts point out that unlike debt-plagued countries in the single currency euro zone region, Japan's reliance on domestic investors who hold about 95 percent of its government bonds provide a degree of security for the country's external balance.

Japan's ability to finance its debt is seen as sustainable in the short-term and not near the level of euro zone regions that have seen borrowing costs skyrocket on fears for their fiscal stability.

"The (Japanese) government can fund itself at a lower nominal cost than any other advanced economy," said Moody's, but the agency warned "pressures could build up over the longer term which should be taken into account in the rating."