Japanese credit quality declining, despite tax hike, stimulus, says S&P

SINGAPORE - Japan’s long-term sovereign credit quality continues to weaken despite better immediate prospects, thanks to the government’s stimulus policies, a hike in the national sales tax to increase revenue, and the Bank of Japan’s quantitative easing to end deflation, Standard & Poor's says  in a report published today. “We believe these measures will slow deterioration in the Government’s already high ratio of debt to GDP, but they still fall short of putting the country on a stable path to mending its fiscal problems,” says the report.

"Uncertainty about Government commitment to curbing bloated expenditures despite the increase in sales tax, along with a narrowing current account surplus and risk to the financial sector from high exposure to government debt, offset better prospects for near-term growth and inflation," says S&P analyst, Takahira Ogawa. "As a result, we still see more than a one-third chance we will lower our sovereign ratings on Japan within two years."

Government stimulus and monetary easing appear to have pumped enough confidence into Japan to successfully kick-start economic growth, for now, says the ratings agency. However, a host of risks -including an unwinding of quantitative easing in the U.S. and a rising sales tax - hang over efforts to end deflation and repair the nation's public finances. www.standardandpoors.com (ATI).