Bangkok--2 Jul--Standard & Poor's
Japan's fiscal deficits have deteriorated following the implementation of government stimulus measures in response to a severe demand contraction.
Standard & Poor's has affirmed its 'AA' long-term and 'A-1+' short-term sovereign credit ratings on Japan. The outlook on the long-term rating remains stable.
Standard & Poor's Ratings Services today affirmed its 'AA' long-term and 'A-1+' short-term local and foreign currency sovereign credit ratings on Japan. At the same time, Standard & Poor's affirmed its 'AA' senior unsecured and 'A-1+' short-term debt ratings on Japan. The outlook on the long-term rating remains stable. The affirmation reflects our view that Japan has the capacity to withstand increasing fiscal pressure, precipitated by the implementation of government stimulus measures in response to a severe demand contraction, through its ample liquidity and a low interest rate environment.
The sovereign ratings on Japan are supported by its strong net external asset position, relatively strong financial system, and diversified economy. These strengths are moderated by the country's large fiscal deficits and outstanding debt, and a political stalemate that could adversely affect fiscal consolidation and structural reforms.
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. The yen has been one of the strongest currencies during the global financial crisis and economic downturn. Japan is the world's largest net external creditor in absolute terms with net assets of US$2.5 trillion (238% of current account receipts) at the end of 2008. The country's current gold and foreign exchange reserves of US$1 trillion are second only to China's. Standard & Poor's expects continued current account surpluses to further enhance Japan's net external asset position in the coming years.
The global financial crisis only moderately hit Japan's financial system compared with its counterparts in the U.S. and Europe. The system remains reasonably well capitalized despite the sudden slowdown of the global economy and acquisitions of stakes in U.S. financial institutions by some mega-financial groups in Japan, although we expect to see a degree of deterioration in asset quality and thus financial strength this year. The liquidity support policies of the Bank of Japan have assisted the country's financial system in facing the instabilities in global capital and financial markets.
The stable outlook is based on our opinion that Japan's current high level of fiscal deficits will not last long. When the Japanese economy stabilizes, we expect the fiscal deficits to return gradually to the levels seen prior to the global financial crisis and ensuing recession. As such, progress in fiscal consolidation and effective public sector reforms will enable Japan to remain in the current rating level.
A Japanese-language version of this media release is available on Standard & Poor's Research Online at www.researchonline.jp, or via CreditWire Japan on Bloomberg Professional at SPCJ . Complete ratings information is available to 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; under Ratings in the left navigation bar, select Find a Rating.
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Takahira Ogawa, Singapore (65) 6239-6342
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