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Japan Receives More Bad Economic News - 2001-12-04

Japan received a double dose of bad economic news Tuesday as another major credit agency downgraded the country's sovereign debt rating and a government report predicts little economic growth for the next few years.

Following the recent actions of two other credit agencies, Moody's Investors Service downgraded Japan's rating. The agency warns that Japan's reforms, so far, have been elusive and predicts that even with bolder measures there is little chance for a quick recovery.

The downgrade affects government-backed domestic bonds, moving them down by one notch to AA-3 AA-2. But Moody's did not downgrade Japan's internationally issued bonds.

Some economists, such as Peter Morgan of banking group HSBC, question whether the latest downgrade for the domestic bonds is all that serious. "It is not clear that it means a whole at this stage but there will be more serious impact if it was a downgrade to a single-A level, but the difference between AA-2 and AA-3 is not that great. But I don't think that by itself is going to have a great impact," says Mr. Morgan.

Also Tuesday, the government released a report predicting that the economy will stagnate for the next several years, with only one percent growth a year. The report, however, defended Prime Minister Junichiro Koizumi's economic restructuring efforts, including cleaning up the massive bad loans held by banks and curb public spending.