Moody`s raises flag on Japan debt, says outlook now negative
Baku, February 22 (AZERTAC). Moody`s Investors Service sent a warning to Japan`s political leadership Tuesday, announcing that it was cutting the outlook on the nation`s Aa2 bond rating to negative from stable, citing the political gridlock that is dimming chances for action soon to rein in the nation`s ballooning debt load.
The move, another headache for beleaguered Prime Minister Naoto Kan, comes hot on the heels of Standard & Poor`s move on Jan. 27 to lower its debt rating for Japan to AA- from AA. S&P said at the time that the government "lacks a coherent strategy" to deal with the debt situation.
The Moody`s action is not a downgrade but a change in outlook is often the first step to a full downgrade of a debt rating. Its current rating level is one notch higher than the S&P level.
Japan`s total government debt is nearly 200% of its total annual economic output, the worst debt load among all major industrialized countries.
While the debt burden has been growing steadily, successive governments have been unable to come up with a solution. Moody`s noted that even Bank of Japan Gov. Masaaki Shirakawa has said that "as history shows, no country can continue to run (large) fiscal deficits forever."
Kan has proposed a tax restructuring that would see an increase in the consumption tax to help pay for the needs of Japan`s aging society. However, his weakened political state means that this is increasingly unlikely to pass as his support erodes. The opposition parties, whose support would be necessary to pass budget-related bills, have ruled out any help to the administration and there are growing calls for Kan to step down.
With the possibility now being raised of a snap election, the long-running political turmoil is likely to last. Kan is already the fifth prime minister in the past four years.
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