Moody's Cuts Japan's Debt Rating on Deficit Concerns

BBC - August 23, 2011

The earthquake and tsunami caused widespread destruction to Japan's north-east coast.

Rating agency Moody's has cut Japan's long-term sovereign debt rating citing concerns about the size of the country's deficit and borrowing levels.

The rating was cut to Aa3 from Aa2, though Moody's also said the country's outlook was stable.

Japan has been trying to recover since the global economic crisis in 2009.

However, it was also hit by an earthquake and tsunami in March, and the rebuilding cost is weighing on growth and state finances.

"The rating downgrade is prompted by the large budget deficits and the build-up in Japanese government debt since the 2009 global recession," Moody's said in its statement.

"Over the past five years, frequent changes in administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies."

According to the latest government figures, Japan's economy shrank by an annualised rate of 1.3% in the three months to the end of June. It shrank 0.3% from the previous quarter.

While that figure was better than many analysts had expected, there are concerns about the increased levels of borrowing and spending that Japan will have to undertake to rebuild after the tsunami.

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