Moody's cuts Japan debt rating

Dubai: Japan was downgraded by ratings agency Moody's last night in the face of growing budget deficits and a build up of Japanese government debt since the 2009 financial crisis. 

The decision, which comes weeks after rival agency S&P downgraded US debt causing massive turbulence in the global markets, was blamed on frequent changes in administrations that have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies. 

Moody's also said that the March 11 earthquake and tsunami, and the subsequent disaster at the Fukushima Daiichi Nuclear Power Station, have delayed recovery from the 2009 global recession and aggravated deflationary conditions. 

"Prospects for economic growth are weak, making it more difficult for the government to achieve deficit reduction targets and implement its Comprehensive Tax and Social Security Reform plan," the agency said in a statement. 

Although Japan's level was downgraded, Moody's affirmed the country's stable outlook, pointing to the undiminished home bias of Japanese investors and their preference for government bonds, which allows the government's fiscal deficits to be funded at the lowest nominal rates globally. 

"We believe that this funding cost advantage will be sustained by considerable institutional and structural strengths, which will prevail even with large budget deficits in 2011 and 2012," Moody's said. 

"The rating action does not affect the Aaa country and bank deposit ceilings, the outlooks for which remain stable. Those ceilings act as a cap on ratings that can be assigned to the obligations of other entities domiciled in the country. Japan's short-term rating is unaffected and remains unchanged at P-1." 

The Nikkei was down 93.40 points (-1.07%) as of 10 am Dubai time, while other Asian stock markets were also trading lower. The Hang Seng index was down 244.42 points (-1,23%) and China's CSI 300 was down 12 points, at -063%.