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Japan's credit rating cut to Aa3 by Moody's

August 23, 2011 |  6:22 pm

In another sign of the debt woes weighing on the world’s developed nations, Japan’s credit rating was downgraded early Wednesday by Moody’s Investors Service.

Japan’s rating was cut one notch, to Aa3 from Aa2, because of “large budget deficits and the buildup in Japanese government debt since the 2009 global recession,” Moody’s said.

Japanflag Japan now is rated the same as China, Taiwan, Macau and Chile.

The move comes nearly three weeks after Moody’s rival, Standard & Poor’s, rocked global markets by cutting the U.S. government’s debt rating to AA+ from AAA. S&P’s shift marked the first time in history that America has had a credit grade below the highest possible rating.

Moody’s, however, so far has maintained its Aaa rating on U.S. debt, though with a "negative" outlook.

Japan lost the top-rung rating more than a decade ago as the government went deeper into debt to try to revive the country’s long-suffering economy.

This year, the government faces new spending pressures as Japan struggles to recover from the devastating March earthquake and tsunami.

From Moody’s announcement Wednesday:

The current government now forecasts a primary budget surplus (excluding interest payments on government liabilities) by 2020, versus the former Koizumi government's target of a budget surplus by 2012.

Headline general government budget deficits will remain approximately at or above 7% of GDP [gross domestic product] through 2015, according to the Cabinet Office's “prudent” projection, well exceeding nominal GDP growth rates and thereby contributing to the inexorable rise in the debt-to-GDP ratio.

Japan’s debt-to-GDP ratio now tops 200%, more than twice the U.S. ratio.

Still, Japan pays some of the lowest interest rates in the world to borrow because most of its debt is purchased by its own people. By contrast, the U.S. relies on foreigners to fund a large portion of its borrowing.

The yield on Japanese 10-year bonds inched up to 1.03% Wednesday from 1.01% on Tuesday. That's less than half the 2.15% current yield on U.S. 10-year Treasury notes.

-- Tom Petruno


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