Standard & Poor’s on Thursday cut Japan’s long-term sovereign-credit rating, with the news sending the yen sharply lower against its major rivals.
The rating agency said it downgraded Japanese debt to AA minus from AA, but it also reaffirmed the nation’s short-term ratings at A-1 plus.
The AA minus rating is the same as China’s. China last year passed Japan as the world’s second largest economy.
The downgrade came hours after figures were released showing that Japan’s exports accelerated for the second month in December.
S$P said in a statement that it “expects Japan’s fiscal deficits to remain high in the next few years, which will further reduce the government’s already weak fiscal flexibility.”
It said it sees the deficit falling “only modestly” to 8% of gross domestic product in the fiscal year beginning April 2013, compared to an estimated 9.1% for the current fiscal year, which ends March 31.
S&P also pointed to Japanese deflation and its aging population as drags on the economy.
“Falling prices have matched Japan’s growth in aggregate output since 1992, meaning the size of the economy is unchanged in nominal terms.
"In addition, Japan’s fast-aging population challenges both its fiscal and economic outlooks.
"The nation’s total social-security-related expenses now make up 31% of the government’s fiscal 2011 budget, and this ratio will rise absent reforms beyond those enacted in 2004.”
S&P also criticized the current Japanese government, saying the ruling Democratic Party of Japan “lacks a coherent strategy to address these negative aspects of the country’s debt dynamics.”
“The downgrade reflects our appraisal that Japan’s government debt ratios, already among the highest for rated sovereigns, will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s,” S&P said.
Still, it said its outlook on Japan’s long-term rating is stable, reflecting its view that an external balance sheet and “monetary flexibility” are helping offset the nation’s fiscal problems.
Both S&P and its rival Fitch Ratings cut Japan to AA minus back in 2002, though S&P raised it back to AA in 2007.
Shipments from Asia’s second-largest economy rose 13% last month to Y6,112bn ($US74.3 billion), faster than November’s 9.1% rise, according to statistics from the Ministry of Finance.
Exports to the US were particularly strong, rising 16.5%, but exports to China, Japan’s biggest market, jumped 20%. Exports to Europe rose 9.7%.
Imports also grew by 109.6%, but that was a slower pace than in November.
As a result, the trade surplus expanded 34.1 per cent to Y727.7bn, the fastest since September and more than economists had estimated.
Exports to China, Japan’s largest trading partner, rose 20.1%
On a seasonally-adjusted basis, export volumes grew 8.5% in December, close to levels not seen since the financial crisis.
The Bank of Japan earlier this week raised its real gross domestic product growth forecast for the year ending in March to 3.3% from its October forecast of 2.1%.
“Japan’s economy is expected to gradually overcome the deceleration in the pace of improvement and return to a moderate recovery path as the growth rate of the global economy is likely to start increasing again led by emerging and commodity-exporting economies,” the central bank said in its post meeting statement.
The sluggish nature of the New Zealand economy has allowed the country’s Reserve Bank to leave its key Official Cash Rate (OCR) unchanged at 3.0%.
While acknowledging improvement in the economic health of the country, the combined impact of subdued consumer spending, the Christchurch earthquake and tax changes, has left the economy slower and lower than would have been the case six months ago.
Despite the slower and lower economy, the NZ Government on Wednesday (see below) committed itself to cutting spending and returning the budget to surplus a year faster than planned.
Growth dipped into the red in the September quarter and there are expectations of another negative or barely positive period in the three months to December.
So the rate hold wasn’t a great surprise when it came yesterday.
It was followed by the usual statement from Governor Alan Bollard who explained: “The outlook for the New Zealand economy remains consistent with the projections underlying the December Monetary Policy Statement.
“Domestic economic activity was weaker than forecast through the second half of 2010. September quarter GDP declined unexpectedly, and retail spending appears to have fallen in the December quarter.
“Forward indicators of activity have firmed somewhat.
"Trading partner activity continues to expand and New Zealand’s export commodity prices have increased further.
"Within New Zealand, business confidence, across a range of industries, has picked up and imports of capital equipment have grown.
"Furthermore, there are tentative signs that housing market activity has stabilised, after having trended lower for some months.
“The recent increase in the rate of GST has caused headline CPI inflation to spike higher as expected, but underlying inflation remains comfortably insid
