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Japan’s AAA Credit Rating Cut for First Time by Tokyo-Based R&I

Tokyo-based Ratings & Investment Information Inc. cut Japan’s sovereign ranking for the first time, citing “uncertain” prospects for economic recovery.

R&I lowered Japan’s foreign- and domestic-currency issuer ratings one step to AA+ from AAA, the company said in a statement today. The company had put Japan on its ratings monitor for a downgrade on Nov. 30.

Japan’s outstanding government debt “would inevitably rise for an extensive period of time” even if the sales tax rate were increased, said the statement. Real gross domestic product is likely to contract this fiscal year as the strong yen and effects from a record earthquake in March weigh on the economy, it said.

“Prospects for economic revitalization are also uncertain,” the ratings company said. “R&I can no longer consider the government’s ability to adjust fiscal conditions on its own to be at a level required for the highest rating.”

The Bank of Japan lowered its assessment for the nation’s economy for a second straight month today while refraining from boosting monetary stimulus. BOJ Governor Masaaki Shirakawa and his policy board kept the central bank’s asset-buying fund at 20 trillion yen ($257 billion), and its credit-lending program at 35 trillion yen, it said in a statement in Tokyo.

“The major root cause for Japan’s worsening finances is an economy that isn’t growing,” said Tadashi Matsukawa, who helps manage the equivalent of $1.7 billion in bonds at PineBridge Investments Japan Co. “Cutting government expenditure is difficult in that voters are generally reluctant to pay and prefer to receive.”

Japan’s finances are “getting worse and worse,” bringing Japan closer to a downgrade, Takahira Ogawa, the Singapore-based director of sovereign ratings at Standard & Poor’s, said on Nov. 24. Moody’s Investors Service reduced Japan’s rating one step to Aa3, the fourth-highest level, on Aug. 24, while Fitch Ratings cut its outlook on Japan’s AA-local grade to “negative” in May.

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