S&P warns Japan on debt

TOKYO: Standard & Poor’s (S&P) warned it could lower Japan’s sovereign rating if the economy expands less than expected or if public debt continues to grow, as the country’s unpopular government struggles to win support for higher taxes.

The ratings agency affirmed its AA rating on Japan with a “negative” outlook but also warned that higher taxes wouldn’t solve the structural problems that push up Japan’s welfare spending and increasingly pressure state coffers.

Japan’s debt burden is the heaviest among industrialised economies, and it may not be able to postpone drastic spending cuts and aggressive tax hikes much longer as Europe’s debt crisis threatens the global economy.

One problem is that Japan’s ruling Democratic Party lacks the majority needed to override opposition in parliament, so policy making often moves at a slow pace.

“In this environment, it’s difficult to get opposition parties to agree to policies that will increase the burden on the public,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said on a conference call.

“This difficulty in pushing through policies is a negative for Japan’s sovereign rating.”

S&P and Fitch both rate Japan AA with a “negative” outlook. Moody’s Investors Service ranks Japan at the same level, at Aa3, but has a “stable” outlook.

All three agencies rate Japan three notches below the top AAA rating.

Japan’s rating could fall if real gross domestic product growth per capita drops below S&P’S forecast of 1.2%, according to a statement released earlier. — Reuters