FACTBOX-Ratings agencies’ warnings on Japan’s growing debt

(For full coverage see [ID:nTOE66A02V])

July 13 (BestGrowthStock) – Japan faces political gridlock after the
ruling party’s poor showing in an election on Sunday, which could
thwart efforts to curb a huge public debt and get the economy in
shape, as well as putting Prime Minister Naoto Kan’s job at risk.

Standard & Poor’s rates Japan’s long-term local and foreign
currency debt AA, both with a negative outlook.

Moody’s Investors Service rates its foreign currency (Read more about trading foreign currency. and
local debt at Aa2, with a stable outlook for both.

Fitch Ratings has the long-term foreign and local currency
issuer default ratings at AA and AA-minus, respectively. The
outlook on both ratings is stable.

At 883 trillion yen ($9,960 billion) as of the end of the
fiscal year that ended in March, Japan’s public debt pile is
nearly twice the size of its economy — the largest debt-to-GDP
ratio in the industrialised world.

The following are comments by the agencies since mid-2009:

July 13, 2010 – Fitch Ratings says the ruling party’s poor
showing at Sunday’s elections will make it more difficult for the
country to push through fiscal consolidation and a delay in a
credible plan beyond the year-end would increase the risk of a
rating downgrade. [ID:nTOE66C043]

July 12, 2010 – Standard & Poor’s says it may lower Japan’s
sovereign ratings if the government’s fiscal position erodes
further or there is a lack of concrete measures aimed at fiscal

It said in a statement that stabilising the political
environment is a key challenge for Japan to implement meaningful
and sustainable fiscal consolidation. [ID:nTOE66B066]

March 30, 2010 – Fitch says it needs to see a sustained
downtrend in debt ratios before considering positive rating
action. [ID:nTKW006875]

Feb. 25, 2010: Moody’s says Japan’s sovereign debt rating
could come under pressure if the economy performs poorly and the
government fails to draw up convincing fiscal plans.

Feb. 22, 2010: Standard and Poor’s says Japan is unlikely to
suffer a credit rating downgrade this year, although it cannot be
ruled out.

It warns that a premature rise in the consumption tax aimed
at shoring up Japan’s finances could hurt the economy,
undermining budget consolidation efforts. [ID:nTOE61L03K]

Jan. 26, 2010: Standard and Poor’s cuts the outlook for
government debt to negative from stable, citing reduced wiggle
room on fiscal policy and voicing disappointment with the
government’s budget consolidation plans.

A weak economic performance and lack of policy initiatives
that could lift medium-term growth could bring about a cut in
Japan’s ratings by a one notch, it says, adding that such an
action could occur in the next two years.

On the other hand, policies that would help get government
debt back under control would allow the ratings to remain at
current levels. [ID:nSGE60P08I]

Jan. 13, 2010: Moody’s says fiscal policy has become more
uncertain following a change in the finance minister to Naoto Kan
from Hirohisa Fujii the previous week.

It says the outlook on Japan’s Aa2 rating depends on whether
the government can achieve stronger economic growth and a return
to a gradual course of deficit reduction and debt containment in
the medium term. [ID:nTOE60609M]

Jan. 5, 2009: Fitch says Japan’s fiscal burden is expected to
increase over the coming years but risks to its credit ratings
are being offset by a strong external balance sheet.

Dec. 30, 2009: Moody’s says the direction of Japan’s rating
largely depends on the government’s efforts to consolidate its
finances in the medium term and cut its deficit, warning that “at
some point” investors will demand a risk premium to fund such
large gaps.

It says that while the expansionary fiscal policy in 2010 was
not surprising given entrenched deflation, the bigger concern was
about government finances after 2010 than about growth prospects.

Nov 10, 2009: Fitch warns it would review its AA- rating on
government bonds if there were a material increase in debt
issuance above the current 44 trillion yen in the fiscal year
starting in April 2010. [ID:nT286946]

Sept. 3, 2009: Fitch maintains Japan’s long-term foreign and
local currency issuer default ratings at AA and AA minus,
respectively, saying its deteriorating public finances were
offset by an exceptionally strong external balance sheet.

The outlook on both ratings is stable. [ID:nT240632]

July 1, 2009: Standard & Poor’s affirms its AA rating on
long-term local and foreign currency (Read more about trading foreign currency. debt, saying the world’s
second-largest economy could withstand rising fiscal pressure
from government stimulus policies.

S&P said the ratings were supported by the strong net
external asset position but that Japan was suffering from a
political stalemate that could harm fiscal consolidation and
structural reforms. [ID:nT153618]

May 18, 2009: Moody’s cuts Japan’s foreign currency (Read more about trading foreign currency. rating by
two notches to Aa2 from AAA but raises the local debt rating to
Aa2 from Aa3, saying the domestic market was able to absorb new
borrowing from the government.

The agency describes the upgrade on the local rating as a
largely technical one but also says Japan is in a worse situation
than many other governments in its top ratings bracket.
($1=88.65 Yen)
(Compiled by Rie Ishiguro and Kazunori Takada; Editing by
Michael Watson)

FACTBOX-Ratings agencies’ warnings on Japan’s growing debt