Japan's Debt Outlook Raised to `Stable' by S&P (Update7) Listen
March 24 (Bloomberg) -- Japan's debt outlook was raised by Standard & Poor's, the first of the top rating companies to become more optimistic after three years of downgrades.
S&P changed the outlook on the AA- local currency debt rating to ``stable'' from ``negative'' because of falling bad loans and improved prospects for growth, the company said in a statement in Tokyo. It said Japan's rating, which is four levels below the top ranking and the lowest among the Group of Seven nations, ``appears secure'' for two years.
The move is an endorsement of Prime Minister Junichiro Koizumi's policy of clearing bad loans at banks, curbing public works spending and relying on the central bank to boost money supply. S&P said it still may take until the end of the decade for improved economic growth to have an impact on public debt that's approaching 144 percent of gross domestic product.
``It's another vote of confidence and adds to evidence that the Japanese economy has some traction at last,'' said Jason Rogers, a credit analyst at Barclays Capital Japan Ltd., one of 23 banks and securities companies that discuss bond sales with the Ministry of Finance.
Japan lost its top AAA rating from Standard & Poor's in February 2001, two months before Koizumi took office in the midst of the third recession since 1991. The rating has been cut twice since then. Moody's now rates Japan A2, two levels lower than S&P, and Fitch gives it a fourth-ranking AA-.
``There are no immediate plans to change the rating, as it is hard to foresee that fiscal reforms will improve rapidly enough,'' Takahira Ogawa, head of S&P's Asian sovereign ratings team, said in a telephone interview.
Record Bond Sales
The benchmark 1.3 percent bond due in March 2014, gained 0.176 to 99.911 at 5:17 p.m. in Tokyo, according to Japan Bond Trading Co. Its yield fell 2 basis points to 1.310 percent. A basis point is 0.01 percentage point.
The outlook change ``doesn't change our view on Japanese bonds,'' said Patrice Conxicoeur, who oversees about $5 billion in investments as chief executive officer at Sinopia Greater China Ltd. ``We are relatively close to fair value and we are not looking to add to our holdings.''
Japanese stocks rose, led by banks such as Mizuho Financial Group Inc. The Topix Index rose to its highest in more than 2 1/2 years, adding 1.2 percent to 1145.95 as of the 3 p.m. close of trading in Tokyo.
Koizumi's government plans to sell a record 36.6 trillion yen ($342.9 billion) of new bonds this fiscal year starting April 1 even is it projects economic growth of 1.8 percent, the third year of expansion.
`Too Low'
Cuts to spending on roads, bridges and other public works aren't stopping the expansion of public debt because Japan must finance welfare costs for an ageing population, said Kunji Okue, an analyst at Dresdner Kleinwort Wasserstein (Japan) Ltd. in Tokyo.
``The Japanese economy and the non-performing loan problems are improving,'' Okue said. ``However, if we take a close look at the fiscal problem I cannot be so bullish.''
Government bonds haven't been affected much by rating changes because more than 95 percent of the debt is owned by investors based in Japan. The state-run postal savings system owns 28 percent of government bonds, and the Bank of Japan owns 12 percent. Lenders, in a bad to avoid adding to bad loans, have tripled their holdings since March 1996.
Chief Cabinet Secretary Yasuo Fukuda said ``the rating is still too low and doesn't accurately reflect Japan's real economic condition.''
Bad Loans
Japan's economy expanded at a 6.4 percent annual pace in the three months to Dec. 31, the fastest in 13 years, fueled by Chinese and U.S. demand for goods such as Canon Inc. digital cameras and chip-making equipment made by Tokyo Electron Ltd. Exports accounted for a quarter of Japan's economic growth during the period.
Tokio Marine & Fire Insurance Co., a unit of Japan's largest property and casualty insurer by premium income, and six others had their financial strength and credit rating outlooks raised to stable from negative by S&P, following the revised outlook on Japan's sovereign credit rating.
The collapse of Japan's 1980s bubble economy and the recessions that followed have left lenders saddled with bad loans, choking the economy of fresh credit it needs to grow. Six years of falling prices have compounded the problem by inflating the value of debt and cutting corporate profits.
Koizumi and his top banking regulator, Heizo Takenaka, have pushed Mizuho Financial Group and other lenders to reduce bad loans to 44.5 trillion yen as of March 2003 from 52.4 trillion yen a year before, according to government figures.
Zero Rates
Bank of Japan Governor Toshihiko Fukui, picked by Koizumi in March last year, increased the bank's purchases of shares from lenders by half to 3 trillion yen. The move limited stock-market investment losses that threatened to push banks' capital below required levels as the Nikkei dropped to two-decade lows last year.
Fukui has also kept interest rates at zero while pumping more money into the economy through purchases of bonds from banks. Under Fukui, the central bank increased the daily target for reserves the bank makes available to lenders by 60 percent to 35 trillion yen.
``The pressure of deflation is receding,'' said Ogawa of S&P. ``Perhaps sometime next year Japan might be able to come out of deflation if you talk about the consumer price index.'' |
