S&P Downgrades Japan Credit Rating
TOKYO (AP) _ Japan’s bond rating was downgraded Wednesday, with the Standard & Poor’s ratings agency saying Prime Minister Junichiro Koizumi’s promised structural reforms are not happening fast enough.
The agency cut Japan’s sovereign credit rating to AA from AA+. It kept its outlook on Japanese credit at ``negative,″ two months after the outlook was downgraded from ``stable.″
Calling for ``radical action″ to put the economy on the growth track, S&P used harsh language in its assessment: ``A crippled financial sector... A rising debt burden... A fundamental institutional dysfunction.″
The agency warned that the government will have to inject funds worth 3 percent of the nation’s gross domestic product into the banking sector in order to keep it solvent.
Meanwhile, the government’s decision to compile a second supplementary budget worth $24.97 billion is pushing public finances further into the red, a situation S&P called ``unsustainable.″
Japan’s public debt currently stands at about $5.4 trillion, equivalent to 130 percent of GDP. S&P predicted debt would peak at 175 percent of GDP by mid-decade.
The ratings agency also said the government is held hostage by special interest groups in the agriculture, construction and retailing sectors, blocking necessary reforms.
Analysts, however, said the downgrade could help the prime minister push through his reform agenda, which includes curbing public spending.
``It reinforces Koizumi’s message that Japan needs to come to grips with its fiscal situation,″ said Matthew Poggi, an economist at Lehman Brothers in Tokyo.
The agency’s move comes just weeks after the government changed its economic growth forecast to negative 0.9 percent for the fiscal year ending in March from 1.7 percent growth.
Japan has been trying emerge from a decade-long economic slump. The global downturn _ and economic uncertainty following the Sept. 11 attacks in the United States _ hurt Japanese exports and corporate earnings.
Officials say the revised economic forecast also reflected a decline in capital investment and worsening unemployment, which rose to a record 5.3 percent in September.