KUALA LUMPUR: Standard & Poor's Ratings Services has revised to negative from stable its outlook on the long-term ratings on Japan.
The ratings agency said on Wednesday, April 27 that it affirmed its long- and short-term sovereign credit ratings on Japan at 'AA-' and 'A-1+', respectively. The transfer and convertibility (T&C) assessment remains 'AAA'.
In its Jan 27, 2011, announcement lowering the long-term rating on Japan to 'AA-', it noted that if it was to mark down its fiscal forecasts, downward pressure on the ratings could reemerge.
'The March 11, 2011, earthquake, tsunami, and attendant damage to Tokyo Electric Power Co. Inc.'s (BBB+/Watch Neg/A-2) Fukushima No. 1 nuclear power plant cause us to make such a markdown to our forecasts,' it said.
S&P said as long as there are no revenue-enhancing measures such as tax increases, it currently projects reCONSTRUCTION [] costs could range from ''20 trillion to ''50 trillion, with ''30 trillion being our central forecast.
'If there are no revenue enhancing measures such as tax increases, we expect the central and local governments to bear most of this cost, adding 2% of GDP to our forecast for this year's general government deficit and 1% to our forecast for next year's, with deficits remaining above 8% of GDP through 2014, compared with 8.0% in 2013 in our previous forecast,' it said.
S&P said overall, it expects Japan's fiscal deficits to increase above its prior estimates by a cumulative 3.7% of GDP through 2013.
It said although it does not expect the disasters to materially hurt the country's medium-term growth potential-- and it does not expect the government's real effective interest rate to rise significantly--we see net general government debt to GDP reaching 145% of GDP in fiscal 2013 (ending March 31, 2014), compared with its previous forecast of 137% of GDP.
In light of the evolving developments at the TEPCO nuclear power plant, in particular, it regards these projections as uncertain. Much will depend on Japan's political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future. The extent of environmental contamination in northeastern Japan remains unknown.
'Although we expect no lasting damage to Japan's supply chains, some manufacturers could decide to move a greater share of production offshore.
'Combined with the headwinds of intermittent deflation and a fast-aging population, Japan will be challenged to raise its real GDP growth potential much above 1% annually over the medium term, in our view,' it said.
S&P said Japan's sovereign ratings are supported at the 'AA-' level by the country's ample net external asset position, relatively strong financial system, and diversified economy. In addition, the yen is a key international reserve currency.
The ratings agency said on Wednesday, April 27 that it affirmed its long- and short-term sovereign credit ratings on Japan at 'AA-' and 'A-1+', respectively. The transfer and convertibility (T&C) assessment remains 'AAA'.
In its Jan 27, 2011, announcement lowering the long-term rating on Japan to 'AA-', it noted that if it was to mark down its fiscal forecasts, downward pressure on the ratings could reemerge.
'The March 11, 2011, earthquake, tsunami, and attendant damage to Tokyo Electric Power Co. Inc.'s (BBB+/Watch Neg/A-2) Fukushima No. 1 nuclear power plant cause us to make such a markdown to our forecasts,' it said.
S&P said as long as there are no revenue-enhancing measures such as tax increases, it currently projects reCONSTRUCTION [] costs could range from ''20 trillion to ''50 trillion, with ''30 trillion being our central forecast.
'If there are no revenue enhancing measures such as tax increases, we expect the central and local governments to bear most of this cost, adding 2% of GDP to our forecast for this year's general government deficit and 1% to our forecast for next year's, with deficits remaining above 8% of GDP through 2014, compared with 8.0% in 2013 in our previous forecast,' it said.
S&P said overall, it expects Japan's fiscal deficits to increase above its prior estimates by a cumulative 3.7% of GDP through 2013.
It said although it does not expect the disasters to materially hurt the country's medium-term growth potential-- and it does not expect the government's real effective interest rate to rise significantly--we see net general government debt to GDP reaching 145% of GDP in fiscal 2013 (ending March 31, 2014), compared with its previous forecast of 137% of GDP.
In light of the evolving developments at the TEPCO nuclear power plant, in particular, it regards these projections as uncertain. Much will depend on Japan's political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future. The extent of environmental contamination in northeastern Japan remains unknown.
'Although we expect no lasting damage to Japan's supply chains, some manufacturers could decide to move a greater share of production offshore.
'Combined with the headwinds of intermittent deflation and a fast-aging population, Japan will be challenged to raise its real GDP growth potential much above 1% annually over the medium term, in our view,' it said.
S&P said Japan's sovereign ratings are supported at the 'AA-' level by the country's ample net external asset position, relatively strong financial system, and diversified economy. In addition, the yen is a key international reserve currency.
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