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Montevideo, March 29th 2024 - 10:03 UTC

 

 

Japan credit rating threatened by weak government and lack of political agreement

Thursday, April 28th 2011 - 01:39 UTC
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Public debt is twice GDP and nuclear disaster reconstruction cost is estimated in 615 billion USD Public debt is twice GDP and nuclear disaster reconstruction cost is estimated in 615 billion USD

Risk rating agency Standard and Poor's threatened to cut Japan's sovereign credit rating again, warning the huge cost of last month's devastating earthquake will hurt already weak public finances unless bickering politicians can agree to raise taxes.

It affirmed its long-term sovereign credit rating on Japan at AA minus - the lowest among the major agencies - but downgraded the outlook to negative from stable.

The change comes three months after S&P had cut Japan's sovereign credit rating - the first reduction since 2002 - saying the government had no plan to deal with its mounting debt while adding the administration's loss of an upper house majority had compounded the problem.

Public debt, already twice the size of the 5 trillion USD economy is set to swell as the country faces reconstruction costs following the March 11 earthquake and tsunami that could reach 50 trillion yen (613 billion USD), S&P said.

“With no revenue enhancing measures such as tax increases, we expect the central and local governments to bear most of this cost,” the agency said.

However, the country's deepest crisis since World War Two has not healed rifts between the government and the opposition, whose majority in the upper house stands in the way of fiscal reform.

In addition, Prime Minister Naoto Kan's deep unpopularity means that even within his party, he has little room for manoeuvre to shore up the country's public finances. Japan’s fiscal reform centres on raising the 5% consumption tax.

“Fiscal reform is something we cannot avoid,” Finance minister Yoshihiko Noda, said. ”The government at present is doing its utmost for disaster relief and reconstruction. It is important to pursue fiscal reform at the same time. We will try to gain trust in Japan's economy and public finances in and outside Japan”, he promised.
 

Categories: Economy, International.

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