Blow to Japan as credit rating cut

Reviewed By Hitoshi URABE

Article:
"Blow to Japan as credit rating cut"
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT34QVSN20D&liv
By Arkady Ostrovsky and Christopher Swann, Financial Times

Comments:
Standard & Poors lowered Japan's foreign and local currency credit rating from AA to AA-, which is comparable to Moody's, whose rating is already at AA3. Also, both institutions maintain a negative outlook for Japan, implying that another notch or two could be lowered in matter of weeks.

There has been little media coverage in Japan of the fact, and the market did not respond to the news. An analyst provided his explanation that "the market is getting used to Japan getting downgraded." A senior politician acknowledged the fact politely with understanding, while a government official at the finance ministry expressed frustration.

Actually, many people who are told of the downgrade respond only with a dull "so what?" But when they are told that the rating is the same level with countries such as Malta, the Czech Republic and Cyprus, they begin to get suspicious -- suspicious not of the condition of Japan, but suspicious of the methodology and intentions of the rating agencies.

It is apparent that the Japanese people have not realized the critical state the country is in. They have not become aware of how serious the figures are, at budget deficit of some eight percent of GDP, with accumulated debt at a whopping 140% of GDP. Argentina, a recently collapsed economy, was experiencing budget deficit of only about 3 percent.

A customary response for those who see things optimistically, when told of the fact, was that whereas Argentina, and other countries that ran into troubles, had a huge foreign deficit, only about five percent of Japanese debt is held by foreigners and about ninety-five percent is held domestically.

Japanese people can perhaps be more patient than foreigners, especially when it involves debts of Japanese government. But this wishful assumption, even if it is proven to be true, does not change the simple rule, that a debt must be repaid. Do they think, by simply quadrupling the tax rate one day would disentangle the situation? A novice scholar of economics would see the fallacy in such a scheme.

Ratings were AAA's by both institutions for Japan only a few years ago. A number of arguments raised against the downgrade, often on their logic and methodology of rating agencies, have subsided since. It seems now that despite the difference of views as to the correct rating Japan is entitled to still may exist, so long as everyone agrees the country is not in a very healthy shape, it would probably be more productive to work on the problems rather than quarreling over the details of the diagnoses.