Accessibility links

Breaking News

Japan Calls Credit Downgrade 'Unjustified'

Japanese officials disagree with Standard and Poor's downgrading of the country's credit rating and call it unjustified. The economy minister sees the downgrade as a signal from investors that the government must proceed with long-delayed economic reforms.

Standard and Poor's lowered Japan's long term sovereign credit ratings from AA to AA- and kept its negative outlook. This is the second time since last November that the prestigious rating agency downgraded Japan's credit rating. Japan now has the lowest ratings among the world's major industrialized nations.

S&P says that Japan has not done enough to cut its huge public debt and to resolve its banking sector's vast mountain of bad loans. In a statement, it calls the country's fiscal position unsustainable. It also says that a major report on the banking system issued last week by Japan's financial watchdog is too narrow, and predicts that the industry will require outside capital to survive.

The ratings agency also criticized Prime Minister Junichiro Koizumi, who took office one year ago and pledged to revive the country's troubled economy. S&P notes that his administration's ability to implement those plans appears to have faltered.

Japanese Economy Minister Heizo Takenaka says the downgrade is a message to the country to continue on the reform path. But other top officials disputed the cut, which is likely to dent international confidence in Japanese bonds and make it more expensive for the government to borrow more money.

Government Spokesman Yasuo Fukuda says that "the rating is too low, adding that Japan has strengths as a creditor and as a nation with a trade surplus."

Finance Minister Masajuro Shiokawa called "the downgrade arbitrary, but said it could not be totally ignored, because many voices are calling for Japan to resolve financial woes."

Vice Finance Minister for International Affairs Haruhiko Kuroda says ratings agencies have no credibility since the Enron affair in the United States, and that he could not understand Monday's decision.

Japan, the world's second largest economy, has been in a slump for more than a decade. In recent weeks, there have been signs that the economy may be on its way to bottoming out.

The Bank of Japan's latest Tankan survey of business sentiment, released in early April, showed improved optimism about the next quarter. However, international investors remain concerned about how Tokyo will rein in fiscal deficits and deliver structural reform.