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Japan's debt rating placed on review for possible cut by Moody's

06-01-2011 08:01 BJT

TOKYO, May 31 (Xinhua) -- Japan's sovereign debt rating was placed on review Tuesday by Moody's Investors Service Inc. for a possible downgrade on mounting concerns about the nation's fiscal health.

The rating agency is reviewing Japan's Aa2 local and foreign currency bond ratings stating that there was "heightened concern that faltering economic growth prospects and a weak policy response would make more challenging the government's ability to fashion and achieve a credible deficit reduction target."

Moody's initially assigned a negative outlook to Japan's domestic and foreign bond ratings on Feb. 22, having left its rating unchanged since May 18, 2009.

In the wake of the March 11 twin disasters, the cash-strapped Japanese government is floundering in its attempts to raise the monumental funds needed to comprehensively address reconstruction needs and parliamentary divides are further impairing the government of Prime Minister Naoto Kan's ability to enact essential budget-related bills.

As Kan faces the threat of a no-confidence motion being submitted by the main opposition Liberal Democratic Party, opposition parties have also impeded the issuance of deficit- covering bonds for the current fiscal year, meaning the gap between revenue and spending allocations could widen by as much as 40 percent, before spending on reconstruction is considered.

Moody's said that without some credible intervention to curb spending or boost revenue, the nation's debt level "will rise inexorably from a level which already is well above that of other advanced economies."

The Organization for Economic Cooperation in its global economic outlook report released on May 25 said that Japan must reduce its budget deficits and downgraded its forecast for the nation's gross domestic product for the second time in two months, reflecting Moody's call for the government to improve its fiscal predicament.

In its latest report the Paris-based OECD, comprising 34 of the world's richest nations, said that Japan has yet to produce credible plans to stabilize its burgeoning debt and needs to specify how it will achieve such goals.

Japan's debt burden is expected to reach 212.7 percent of GDP at the end of this year and 218.7 percent in 2012, in lieu of a viable fiscal consolidation plan.

Japanese Economics Minister Kaoru Yosano told reporters Tuesday that the news from Moody's was troubling and means that global markets are urging the Japanese government to take concrete steps towards fiscal consolidation.

"The government needs to show strong-willed effort to implement a tax and social security overhaul" being planned for release late next month, Yosano said.

Editor:Yang Jie |Source: Xinhua

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