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203356
Wed, 08/24/2011 - 18:20
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https://oananews.org//node/203356
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Moody's cuts Japan debt rating for 1st time in 9 yrs
TOKYO, Aug. 24 Kyodo - Moody's Investors Service Inc. said Wednesday it has lowered the credit rating of Japanese government bonds by one notch for the first downgrade in nine years, citing the huge budget deficit and debt as well as political instability, which it said has hampered drastic reform initiatives.
The downgrade -- from Aa2 to Aa3 with a stable outlook -- added to growing concerns about fiscal sustainability in the world's leading economies, with financial markets already unsettled by debt problems in the United States and Europe. But the latest action by the U.S. rating agency had been largely expected and the bond market in Tokyo reacted calmly.
Moody's also downgraded a range of credit ratings related to Japan, including those for the Bank of Tokyo-Mitsubishi UFJ and other major financial institutions, which have large government debt holdings, as well as state-backed entities, in a move that could lead to higher fund-raising costs.
The cut in the sovereign debt rating came despite Tokyo's efforts to rehabilitate its debt-laden public finances, including a recently announced plan to double the consumption tax rate to 10 percent in stages by the mid-2010s to help secure funds to cover swelling welfare costs, which have increasingly weighed on state coffers.
''Several factors make it difficult for Japan to slow the growth of debt-to-GDP (gross domestic product) and thus drive this rating action,'' Moody's said in its report.
Prime Minister Naoto Kan described the downgrading as ''disappointing,'' while Chief Cabinet Secretary Yukio Edano told reporters that Japan will continue to make efforts toward fiscal restoration.
The report also said, ''Over the past five years, frequent changes in administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies.''
Moody's expressed doubt that the successor to Prime Minister Naoto Kan, who is to step down soon, would be able to pursue the government's social security and tax reform plan, given conflicts within the ruling Democratic Party of Japan as well as the divided Diet, in which opposition parties control the upper house.
The March 11 earthquake and tsunami has undermined Japan's recovery from the global economic downturn following the collapse of U.S. investment bank Lehman Brothers Holdings Inc. in 2008, as well as from ''aggravated deflationary conditions,'' it added.
Japanese Finance Minister Yoshihiko Noda rejected any prospect that the action would immediately make it difficult for the government to borrow by issuing debt.
''Recent auctions for Japanese government bonds have been well subscribed. Confidence in our bonds will not be shaken,'' Noda told reporters after Moody's announcement.
The yield on 10-year government bonds was stable at around 1.02 percent Wednesday morning in Tokyo, almost unchanged from the previous day's close, with analysts saying the impact of the downgrade appeared limited as the move had been widely expected.
Lee Chiwoong, economist at Goldman Sachs Japan Co., said that the deterioration in Japan's fiscal health was already public information. ''In that sense, (the rating cut) is little of a surprise,'' Lee said in his report.
Moody's previously cut its rating for Japanese government debt in May 2002. The agency subsequently raised the rating three times to Aa2.
The agency warned in May that it would review its rating for a possible downgrade amid concern that Tokyo would be unable to reach a credible deficit reduction goal.
Moody's action followed rival Standard and Poor's downgrading of its Japanese sovereign debt rating in January to AA-minus from AA. In April, S&P also lowered the outlook for the rating to negative from stable.
The government said earlier this month that it will likely miss its key fiscal rehabilitation goal for fiscal 2020 even if it raises the sales tax as planned.
The government has set the goal of achieving a primary balance surplus by the end of the year through March 2021, which means the government will be able to finance its policy spending, excluding debt-servicing costs, without issuing new bonds.
According to a government estimate, it will fail to meet the goal, falling around 18 trillion yen ($234 billion) short. To cover the shortfall, it would need to raise the consumption tax rate to around 17 percent.
The estimate added to the view that the government will have to implement additional reforms aimed at increasing revenues while reducing expenditures.
The downgrade -- from Aa2 to Aa3 with a stable outlook -- added to growing concerns about fiscal sustainability in the world's leading economies, with financial markets already unsettled by debt problems in the United States and Europe. But the latest action by the U.S. rating agency had been largely expected and the bond market in Tokyo reacted calmly.
Moody's also downgraded a range of credit ratings related to Japan, including those for the Bank of Tokyo-Mitsubishi UFJ and other major financial institutions, which have large government debt holdings, as well as state-backed entities, in a move that could lead to higher fund-raising costs.
The cut in the sovereign debt rating came despite Tokyo's efforts to rehabilitate its debt-laden public finances, including a recently announced plan to double the consumption tax rate to 10 percent in stages by the mid-2010s to help secure funds to cover swelling welfare costs, which have increasingly weighed on state coffers.
''Several factors make it difficult for Japan to slow the growth of debt-to-GDP (gross domestic product) and thus drive this rating action,'' Moody's said in its report.
Prime Minister Naoto Kan described the downgrading as ''disappointing,'' while Chief Cabinet Secretary Yukio Edano told reporters that Japan will continue to make efforts toward fiscal restoration.
The report also said, ''Over the past five years, frequent changes in administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies.''
Moody's expressed doubt that the successor to Prime Minister Naoto Kan, who is to step down soon, would be able to pursue the government's social security and tax reform plan, given conflicts within the ruling Democratic Party of Japan as well as the divided Diet, in which opposition parties control the upper house.
The March 11 earthquake and tsunami has undermined Japan's recovery from the global economic downturn following the collapse of U.S. investment bank Lehman Brothers Holdings Inc. in 2008, as well as from ''aggravated deflationary conditions,'' it added.
Japanese Finance Minister Yoshihiko Noda rejected any prospect that the action would immediately make it difficult for the government to borrow by issuing debt.
''Recent auctions for Japanese government bonds have been well subscribed. Confidence in our bonds will not be shaken,'' Noda told reporters after Moody's announcement.
The yield on 10-year government bonds was stable at around 1.02 percent Wednesday morning in Tokyo, almost unchanged from the previous day's close, with analysts saying the impact of the downgrade appeared limited as the move had been widely expected.
Lee Chiwoong, economist at Goldman Sachs Japan Co., said that the deterioration in Japan's fiscal health was already public information. ''In that sense, (the rating cut) is little of a surprise,'' Lee said in his report.
Moody's previously cut its rating for Japanese government debt in May 2002. The agency subsequently raised the rating three times to Aa2.
The agency warned in May that it would review its rating for a possible downgrade amid concern that Tokyo would be unable to reach a credible deficit reduction goal.
Moody's action followed rival Standard and Poor's downgrading of its Japanese sovereign debt rating in January to AA-minus from AA. In April, S&P also lowered the outlook for the rating to negative from stable.
The government said earlier this month that it will likely miss its key fiscal rehabilitation goal for fiscal 2020 even if it raises the sales tax as planned.
The government has set the goal of achieving a primary balance surplus by the end of the year through March 2021, which means the government will be able to finance its policy spending, excluding debt-servicing costs, without issuing new bonds.
According to a government estimate, it will fail to meet the goal, falling around 18 trillion yen ($234 billion) short. To cover the shortfall, it would need to raise the consumption tax rate to around 17 percent.
The estimate added to the view that the government will have to implement additional reforms aimed at increasing revenues while reducing expenditures.
