S&P cuts debt rating outlook for Japan

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TOKYO, Jan. 26 Kyodo -
Standard & Poor's Ratings Services on Tuesday revised its sovereign debt rating
outlook for Japan from stable to negative for a possible downgrade, citing the
government's lack of policies to improve public finances and boost growth.
It is the first time in about eight years that S&P has downgraded its rating or
rating outlook for Japanese government debt, fueling concern that long-term
interest rates could move higher.
''The Japanese government's diminishing economic policy flexibility may lead to
a downgrade unless measures can be taken to stem fiscal and deflationary
pressures,'' S&P said, though it affirmed the AA long-term and A-1-plus
short-term local and foreign currency sovereign credit ratings for Japan.
''Moreover, the policies of the new Democratic Party of Japan government point
to a slower pace of fiscal consolidation than we had previously expected,'' the
U.S. rating agency said.
After the downward revision, Finance Minister Naoto Kan told a news conference
he is ''fully aware that fiscal soundness is extremely important.''
He said that the government of Prime Minister Yukio Hatoyama, formed last
September, will continue to make efforts toward maintaining fiscal discipline
and winning the trust of capital markets, such as mapping out a new mid-term
fiscal reform plan later this year.
Kan, however, said Japan also needs to continue carrying out economic
pump-priming measures for some time to establish a solid recovery.
S&P's move came after the Hatoyama government last month drafted a budget for
fiscal 2010 starting April that calls for a record 44.3 trillion yen in new
debt issuance.
Last time S&P downgraded its sovereign debt rating for Japan was April 2002,
when it cut the rating from AA to AA-minus. Japan secured the top AAA rating in
February 2001 but its debt rating has been declining since.
S&P said the affirmation of the present ratings rests on Japan'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.
But S&P noted the ratings for Japan could fall by one notch if economic data
remain weak and measures to boost medium-term growth are not forthcoming, given
its high government debt burden and weak demographic profile.
S&P will be looking for signs of government policy aimed at fiscal
consolidation in the update of Japan's medium-term fiscal plan due out in the
first half of this year, it said.
==Kyodo