Ratings agency Moody’s says it may lower Japan’s sovereign debt rating within three months, the second move against the country’s credit rating on five days and the third in a month.
While Fitch put the country’s outlook on a negative basis last Friday, citing the larger than expected and continuing impact of the Fukushima nuclear crisis, Moody’s move is directed against the rating itself.
The news of the Moody’s rating didn’t seem to worry investors: the Tokyo market rose 1.2%, buoyed more by the small rise in production.
In April, rival rater Standard & Poor’s cut its outlook on Japan’s sovereign rating to negative from stable to reflect the higher potential for a downgrade after the disaster.
S&P’s AA-minus rating on Japan — its fourth-highest — is one notch below Moody’s Investors Service’s Japan debt rating of Aa2. Fitch has the same rating as S&P.
Four months ago, before the earthquake on March 11, S&P cut Japan’s rating for the first time in nine years by one notch.
So Moody’s move has an element of catch up.
The news came an hour or so after figures were released showing a modest recovery in industrial production in April of 1%, nowhere near recovering the 15.3% plunge seen in March.
That was far less than the market forecasts of a 2.9% rise from Dow Jones and 2% from Bloomberg.
But Japanese companies expect to boost production by a much sharper rate in May and June – by 8% and 7.7% respectively.
The May estimate is up from a 2.7% figure given a month ago and indicates manufacturers are becoming more confident.
The quake and tsunami plunged the economy into the red in the March quarter, pushing annual growth down 3.7% (0.9% quarter on quarter).
Exports dropped 12% in April because of the fall in cars and electronics parts.
But the impact of the expected summer power shortages will hold back the economy and prevent a surge in output, according to some analysts in Tokyo.
However, car companies are reporting a faster than expected rise in output as scarce parts are sourced.
But April was bad with production of cars, trucks and buses in Japan down 60.1% from a year earlier, according to figures issued in Tokyo.
That’s a bigger fall than the 57.3% drop in March, which mostly happened from March 11 onwards.
The Japan Automobile Manufacturers Association said vehicle output fell to 292,001 vehicles in April, from 731,829 in the same month a year earlier.
Domestic vehicle demand stood at 185,673, down 47.3% from a year earlier.
But car companies are reporting that production is being ramped up more quickly than first thought as more scarce spare parts are being supplied.
That ‘s why the Industry Ministry said improved outlook for production was due to higher output of for transport equipment (cars), electronics parts and devices, and information and communications electronics — in that order.
And other figures issued yesterday showed Japan’s jobless rate increased to 4.7% from March’s 4.6%, the Ministry of Internal Affairs said.
The figures exclude households in quake-hit Fukushima, Miyagi and Iwate prefectures.
These usually account for about 5% of all Japanese households in the survey.
Due to the earthquake and nuclear accident in March, the survey was not conducted in the three prefectures for a second month in a row.
That’s a small rise and indicates that companies have not taken the opportunity to cut costs while factories have been down because of the March 11 disruption.
Separately released data from the Internal Affairs ministry showed spending for households of two or more people fell by a price-adjusted 3% from a year earlier, as the effect of the March 11 quake and tsunami continued to impact on consumer confidence.
But that’s far better than the 8.5% plunge in March, year on year.
In its statement yesterday, Moody’s said. "The review has been prompted by heightened concern that faltering economic growth prospects and a weak policy response would make more challenging the government’s ability to fashion and achieve a credible deficit reduction target".
While a Japanese government bond funding crisis is unlikely in the near- to medium-term, Moody’s said "pressures could build up over the longer term," and said "at some point in the future, a tipping point could be reached, and at which the market would price in a risk premium to government debt".
Moody’s also said the much larger-than-initially expected economic and fiscal costs of the March 11 earthquake and tsunami, had magnified the effects of the global financial crisis “from which Japan’s economy has not completely recovered".
It also cited concerns that government policy would continue to fall short of reducing the country’s deficit "on a timely basis" as well as Japan’s vulnerability to demographic pressures and possible future shocks.
"Preliminary indications are that the direct costs to the government’s budget may amount to around 2%" of GDP, Moody’s said — not including costs that may arise from Tokyo Electric Power Co’s liabilities from its disaster-crippled Fukushima Daiichi nuclear power plant.
Moody’s warned that unless Japan can get a grip on its fiscal situation, its debt level "will rise inexorably from a level which already is well above that of other advanced economies".
On Monday afternoon, Standard & Poor’s dropped the ratings on Tokyo Electric Power’s debt to junk level. No wonder, its just taken on $US24 billi
