Bangkok--27 Jan--Standard & Poor's
--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.
Standard & Poor's Ratings Services today 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 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 consolidation 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+
Teleconference
Timing: 4:30 pm Hong Kong/Singapore time, Jan. 26, 2010
Speakers: Agost Benard, Takahira Ogawa, Elena Okorotchenko.
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
PASSCODE (required): STANDARD
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 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.
Media Contact:
Edward Sweeney, New York (1) 212.438.6634,
[email protected]
Analyst Contacts:
Agost Benard, Singapore (65) 6239-6347
Takahira Ogawa, Singapore (65) 6239-6342
Key Contacts:
Americas Media Relations: (1) 212-438-6667
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[email protected]
Americas Customer Service: (1) 212-438-7280
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