STANDARD & POOR’S has cut Japan’s sovereign rating for the first time since 2002, saying the government lacks a “coherent strategy” for dealing with its soaring debt.
The one notch cut to AA- puts S&P’s domestic and foreign ratings for Japan on a par with China’s as concerns grow about the long-term financial prospects of the world’s third-largest economy.
There are no signs that Japan faces an immediate debt crisis and government bond yields remain very low by international standards. However the state’s debt burden is expected to soar above 200 per cent of gross domestic product this year.
Yoshihiko Noda, finance minister, declined to comment directly on S&P’s move but stressed the need to maintain investor confidence.
Junichi Ujiie, chairman of Nomura Holdings, Japan’s leading investment banking group, said that the downgrade was “not a big surprise” and could help the cause of fiscal reform.
“It will make it easier for Yosano to push through laws on fiscal reform,” Mr Ujiie told journalists at the World Economic Forum in Davos.
The yen fell by more than one yen to 83.22 yen to the US dollar on news of the downgrade yesterday but had recovered to 82.80 yen by late evening in Tokyo.
The cost of insuring Japan’s sovereign debt against default widened 4 basis points to 84 basic points, according to financial data provider Markit.
This is still well below the record 120 basic points reached in February 2009. S&P said that it expected Japan’s fiscal deficit to decline “only modestly” to an estimated 8 per cent of GDP in the year starting April 2013 from 9.1 per cent this fiscal year.
“The downgrade reflects our appraisal that Japan’s government debt ratios, already among the highest for rated sovereigns, will continue to rise further than we envisaged before the global economic recession hits the country and will peak only in the mid-2020s,” S&P said.
– (Copyright The Financial Times Limited 2011)
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