S&P Lowers Japan's Credit Outlook

The Washington Post reports:

TOKYO — Standard & Poor’s lowered its outlook for Japan’s credit rating to negative amid concern the country’s finances will deteriorate further as it rebuilds after last month’s earthquake and tsunami.

The change announced Wednesday from a stable outlook means Japan’s sovereign debt rating could be downgraded, which might increase the government’s borrowing costs.

S&P said the March 11 disasters cast doubt over Japan’s economic performance and will increase its already large debt.

It said the next two years present severe challenges to Japan as it seeks to reduce public debt — more than twice the country’s gross domestic product — while financing reconstruction.

“If the government’s debt trajectory remains on its current course or begins to erode the nation’s external position, the long- and short-term ratings could be lowered,” the agency said.

S&P projected that reconstruction costs could range from 20 trillion yen ($245 billion) to 50 trillion yen ($623 billion), increasing the country’s fiscal deficits above prior estimates by 3.7 percent of gross domestic product through 2013.

If Japan’s fiscal deterioration outpaces those revised estimates — and the country does not boost revenue through tax increases or other means — S&P said its long-term sovereign rating could be downgraded from its current ‘AA-.’

The warning came four months after the agency cut Japan’s credit rating for the first time in almost nine years, lowering the long-term sovereign debt score one notch to its fourth highest level in what was seen as a critique of the government’s ability to control its ballooning debt.

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