Moody's reviewing Japan rating for downgrade

AP News
Posted: May 31, 2011 4:27 AM
Moody's reviewing Japan rating for downgrade

Moody's Investors Service warned Tuesday it could downgrade Japan's sovereign debt ratings due to faltering economic growth after the March tsunami disaster and concern over the country's massive public debt.

The rating agency put Japan's Aa2 foreign and local currency bond ratings on review for a possible downgrade.

The warning came after the world's No. 3 economy slipped back into recession in the first quarter due to tumbling output and exports following the March 11 earthquake and tsunami.

Moody's said costly recovery efforts after the twin disasters could further pressure Japan's deteriorating financial position. Japan's ballooning debt is now twice the size of the country's gross domestic product.

It said Prime Minister Naoto Kan's government has yet to map out a policy to rein in debt, and warned that the government may not be able to reduce its deficit in a timely manner.

"Without an effective strategy, government debt will rise inexorably from a level which already is well above that of other advanced economies," Moody's said.

The Organization for Economic Cooperation and Development has recommended that Japan raise its sales tax, now 5 percent, to as high as 20 percent to cut debt.

Other major ratings agencies have issued similar assessments. Fitch Ratings last week lowered its outlook on Japan to "negative," a month after Standard & Poor's did the same.

In January, S&P cut Japan's credit rating for the first time in almost nine years because of the country's ballooning debt. The agency lowered Japan's long-term sovereign debt rating one notch to AA-, which is the fourth highest level and the same rating given to China, Saudi Arabia and Kuwait.