CORRECTED – CORRECTED-(OFFICIAL)-S&P: Outlook on Japan to negative

(Standard & Poor’s corrects paragraph 3 of its statement to …
fiscal deterioration …, not… fiscal consolidation)

Jan 26

— Japan’s fiscal flexibility has diminished.

— We revised the outlook on the long-term rating to negative
from stable

— We affirmed our ‘AA’ long-term and ‘A-1+’ short-term
sovereign credit ratings on Japan.

On Jan. 26, 2010, Standard & Poor’s Ratings Services revised
to negative from stable its outlook on the ‘AA’ long-term rating
on Japan. At the same time, we affirmed our ‘AA’ long-term and
‘A-1+’ short-term local and foreign currency (Read more about trading foreign currency. sovereign credit
ratings on Japan.

The outlook change reflects our view that the Japanese
government’s diminishing economic policy flexibility may lead to
a downgrade unless measures can be taken to stem fiscal and
deflationary pressures. At a forecasted 100% of GDP at fiscal
yearend March 31, 2010, Japan’s net general government debt
burden is among the highest for rated sovereigns. Moreover, the
policies of the new Democratic Party of Japan (DPJ) government
point to a slower pace of fiscal consolidation than we had
previously expected. Combined with other social policies that are
not likely to raise medium-term trend growth and with persistent
deflationary pressures, we forecast that Japan’s net general
government debt to GDP will peak at 115% of GDP over the next
several years.

The affirmation of the ‘AA’ sovereign ratings on Japan rests
on the country’s strong net external asset position, the yen’s
status as a reserve currency, the financial system’s resiliency
throughout the recent global recession, and the economy’s
diversification. We believe that these strengths will keep the
government’s rating in the ‘AA’ category, even if further fiscal
deterioration leads to a one notch downgrade.

A strong net external asset position and the yen’s key
international currency position provide ample external liquidity
and good access to global capital markets. Japan is the world’s
largest net external creditor in absolute terms with projected
net assets of an estimated 309% of current account receipts at
the end of 2009. The country’s current gold and foreign exchange
reserves of over US$1 trillion are second only to China’s.
Standard & Poor’s expects Japan’s net external assets to rise
further in the coming years due to continued current account
surpluses.

The ratings on Japan could fall by one notch if economic data
remain weak and measures to boost medium-term growth are not
forthcoming, given the country’s high government debt burden and
its weak demographic profile. Standard & Poor’s will be looking
for signs of government policy toward fiscal consolidation in the
update of its medium-term fiscal plan, due to be released in the
first half of 2010. Additional policy initiatives may also be
revealed after the upper house elections in July. If on the other
hand we conclude that government policies, either on the fiscal
side or structural reform side, will moderate the government’s
debt trajectory, the ratings could stabilize at the current
levels.

Ratings List
Outlook Revised
To From
Japan
Foreign currency AA/Negative/A-1+ AA/Stable/A-1+
Local currency AA/Negative/A-1+ AA/Stable/A-1+
Ratings Affirmed
Japan
Foreign Currency AA/A-1+
Local currency AA/A-1+
Complete ratings information is available to RatingsDirect on the
Global Credit Portal subscribers at www.globalcreditportal.com
and RatingsDirect subscribers at www.ratingsdirect.com. All
ratings affected by this rating action can be found on Standard &
Poor’s public Web site at www.standardandpoors.com. Use the
Ratings search box located in the left column.
Primary Credit Analysts: Agost Benard, Singapore (65) 6239-6347;

[email protected]

Takahira Ogawa, Singapore (65) 6239-6342;

[email protected]

CHINA: 10800-712-1470 or 10800-120-1470 HONG KONG:
852-3001-3802

SINGAPORE: 800-120-5226 TAIWAN: 00801-137-864

JAPAN: 00531-12-0955

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CORRECTED – CORRECTED-(OFFICIAL)-S&P: Outlook on Japan to negative