Japan plays down US debt fears

Japanese cabinet ministers played down worries about Moody's warning that it could downgrade the United States if there is no progress in raising the federal debt ceiling, with the outlook for US public finances raising uncomfortable questions about Japan's debt burden and its Treasury holdings.

Economics minister Kaoru Yosano said he was sure the US government would maintain trust in the dollar and had no concerns about US public finances. Finance minister Yoshihiko Noda was equally confident.

Japanese officials tend to avoid expressing concern about the US budget deficit because Japanese public finances are weak and it holds a lot of US Treasuries.

Still, the warning from Moody's could cause concern among investors as public finances in many countries are under scrutiny.

"I am sure the US government will make it a priority to maintain trust in the dollar as a global reserve currency," Mr Yosano said. "I'm not worried about the United States in the slightest."

Ratings agency Moody's Investors Service said yesterday it would consider cutting the United States' coveted top-notch credit rating if the White House and Congress do not make progress by mid-July in talks to raise the US debt limit.

Moody's warning increases pressure on president Barack Obama and House of Representatives speaker John Boehner, the top Republican in the US Congress, to strike a deal soon or risk upsetting global financial markets.

"Basically, I think there is trust in the US dollar and US Treasuries," Mr Noda said, declining to comment any further about Moody's.

Japan's public debt is already about twice the size of its $5 trillion economy and ratings agencies are threatening to downgrade it due to the cost of reconstruction after the March 11th earthquake and tsunami, which triggered a radiation crisis at the Fukushima nuclear power plant.

Japan held $907.9 billion in US Treasuries as of March, the most recent month for which US Treasury data on foreign holdings is available, ranking behind only China on the list of the largest foreign creditors.

Reuters