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Japan's debt rating is cut as deficits pile up

January 27, 2011 | 11:58 am

In another reminder of the worsening debt loads of developed nations, Standard & Poor’s on Thursday cut Japan’s credit rating one notch, citing the country’s continuing large budget deficits and the burden of an aging population.

Japan’s rating was trimmed to AA-minus from the AA rating it had held since 2007. The country lost its top AAA rating from S&P in 2001 after more than a decade of economic malaise.

Japan Japan’s total public debt is about 200% of gross domestic product, the highest of any developed country and more than double the U.S. ratio.

S&P said the downgrade reflected its concern that Japan’s debt ratio would continue to rise as annual budget deficits piled up. It forecasts a deficit of 9.1% of GDP in the current fiscal year, and expects that to decline “only modestly” to 8% in fiscal 2013.

“Japan’s debt dynamics are further depressed by persistent deflation,” S&P said. “In addition, Japan’s fast-aging population challenges both its fiscal and economic outlooks.”

The government “lacks a coherent strategy to address these negative aspects of the country’s debt dynamics,” the ratings firm said.

With the U.S. budget deficit this year expected to be about 10% of GDP, S&P has warned Washington that it shouldn’t take its AAA-rating for granted -- although there’s no indication that S&P or its rivals, Moody’s Investors Service and Fitch Ratings, are itching to downgrade the U.S. any time soon.

One advantage Japan has is that it mostly funds its own debt load internally, as opposed to relying on foreign creditors. That’s a big reason why its government bond yields still are so low -- just 1.2% on 10-year notes, compared with about 3.40% on U.S. 10-year Treasury notes.

-- Tom Petruno

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