S&P cuts Japan sovereign rating outlook on quake costs
TOKYO |
(Reuters) - Standard and Poor's on Wednesday threatened to cut Japan's sovereign rating, warning that the huge cost from last month's devastating earthquake will hurt the country's already weak public finances without tax hikes.
The rating agency said costs related to the March 11 earthquake, tsunami, and nuclear power plant disaster will increase Japan's fiscal deficit above prior estimates by a cumulative 3.7 percent of GDP through 2013.
"We revised the outlook on the long-term rating on Japan to negative to reflect the potential for a downgrade if fiscal deterioration materially exceeds these estimates in the absence of greater fiscal consolidation," S&P said in a statement.
"In light of the evolving developments at the TEPCO nuclear power plant, in particular, we regard these projections as uncertain. Much will depend on Japan's political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future," it said.
The yen dipped shortly after the announcement with the dollar climbing to an intraday high of 81.781 yen.
"Given the huge damage from the earthquake, everyone knows that government spending will be massive," said Junko Nishioka, chief economist at RBS Securities Tokyo.
"We are not expecting big new government bond issuance for the coming second supplementary budget but political deadlock is likely to heighten the negative risk for sovereign debt."
S&P affirmed its long-term rating on Japan at AA minus.
The government's top spokesman, Yukio Edano, said that while fiscal steps are needed for quake relief, Tokyo will strive to maintain trust in Japanese government bonds.
(Reporting by Leika Kihara; Editing by Joseph Radford)
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