Japan’s sovereign debt cut to negative
(28 April 2011 – Japan) The fiscal outlook will depend on political leadership to manage Japan's debt challenge, Standard & Poor (S&P) said in a statement this week after downgrading the country’s rating.
The company predicted that rebuilding will cost 20 trillion yen (A$228 billion) to 50 trillion yen. Japan’s Prime Minister Naoto Kan has so far submitted what he says may be the first of multiple supplemental budgets, worth 4 trillion yen.
Japan's sovereign-rating outlook was cut to "negative" by S&P as the nation's reconstruction needs following last month's earthquake will likely add to what's already the world's biggest debt load.
The outlook on Japan's local-currency debt rating, at AA-, the fourth-highest grade, was lowered from "stable," S&P said in a statement. The company had reduced the rating by one step in January in the first cut since 2002.
Today's decision adds to pressure on Mr Kan, who has yet to detail how the rebuilding will be paid for and how he plans to rein in longer-term fiscal deficits.
As public spending increases, revenue will likely decline because of the economic hit from the disaster, with a report today showing retail sales tumbled the most in 13 years last month.
The Organisation for Economic Cooperation and Development last week urged Kan's government to at least double a sales tax to 10 percent and to implement increases as soon as possible. Japan's public debt will reach 204 percent of gross domestic product this year, according to the OECD, the highest level among nations tracked by the group.
S&P also commented that "The negative outlook indicates that if fiscal rebuilding measures to put a stop to the fiscal worsening aren't introduced, and if the fiscal situation worsens more than S&P expects, there's a possibility of a downgrade within two years."
S&P said it will be difficult for Japan to achieve economic growth rates "much higher than 1 percent in the medium term" because of deflation and the aging population.
Economists estimate that Japan's GDP will shrink the most since the global credit crisis in the second quarter, before restoring expansion in the second half of the year.
Japan's sovereign-rating outlook was cut to "negative" by S&P as the nation's reconstruction needs following last month's earthquake will likely add to what's already the world's biggest debt load.
The outlook on Japan's local-currency debt rating, at AA-, the fourth-highest grade, was lowered from "stable," S&P said in a statement. The company had reduced the rating by one step in January in the first cut since 2002.
Today's decision adds to pressure on Mr Kan, who has yet to detail how the rebuilding will be paid for and how he plans to rein in longer-term fiscal deficits.
As public spending increases, revenue will likely decline because of the economic hit from the disaster, with a report today showing retail sales tumbled the most in 13 years last month.
The Organisation for Economic Cooperation and Development last week urged Kan's government to at least double a sales tax to 10 percent and to implement increases as soon as possible. Japan's public debt will reach 204 percent of gross domestic product this year, according to the OECD, the highest level among nations tracked by the group.
S&P also commented that "The negative outlook indicates that if fiscal rebuilding measures to put a stop to the fiscal worsening aren't introduced, and if the fiscal situation worsens more than S&P expects, there's a possibility of a downgrade within two years."
S&P said it will be difficult for Japan to achieve economic growth rates "much higher than 1 percent in the medium term" because of deflation and the aging population.
Economists estimate that Japan's GDP will shrink the most since the global credit crisis in the second quarter, before restoring expansion in the second half of the year.
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