Repost: Moody's may downgrade more Japan firms on economy
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Tuesday May 19, 5:13 am Eastern Time
Moody's may downgrade more Japan firms on economy
TOKYO, May 19 (Reuters) - Widespread deflationary pressures in Japan may lead to more downgrading of Japanese companies, particularly construction companies and financial institutions, U.S. credit rating agency Moody's Investors Service said on Tuesday.
Moody's said in a report that deflationary pressures, which Japanese companies have never faced before, mean there will soon be dramatic changes in earnings dynamics and company fundamentals for many of the companies Moody's rates.
As a result, it said, ''More rating revisions are likely, especially among construction companies and financial institutions, which are likely to bear the brunt of Japan's current economic strains.''
With nominal interest rates in Japan already close to zero, there is little room for major Japanese corporations to reduce their debt burdens in line with falling values of their inventories and long-term investments, it said.
However, at least for the medium term, personnel costs will remain a fixed component, based on the continued predominance of the lifetime employment system in Japan, it said.
Moody's also said management at Japanese companies has few tools to restructure due to asset deflation and a growing unwillingness on the part of banks to fund the real estate sales that had fuelled restructuring efforts by the companies in the past.
Some Japanese corporations have started to modify crucial elements of the so-called Japanese management practices, including lifetime employment, but not all companies will make this transition, it said.
''And those that do not will likely see their credit quality and ratings continue to decline,'' it said.
Moody's said that it has downgraded 19 Japanese companies since the beginning of this year, affecting nearly $40 billion in debt. At present, 25 companies are under review for possible downgrade.
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