Sovereign Ratings of Japan Lower Than That of a Developing Country

“What on earth makes Japan rated below developing countries?”

In relation to the downward adjustment of the sovereign ratings of Japanese, Japanese government and rating companies are struggling. When the Treasury Ministry of Japan protested by saying, “The decision lacks objective criteria,” rating companies re-protested, “It was an adequate rating.”

The start of the conflict is that the U.S. rating firm S&P lowered the sovereign ratings of Japan to AA from AA+ on the 15th of last month. The Japanese government, so far, ignored it saying, “We won’t comment on a private company’s viewpoint.” It did send, however, a protesting letter under the name of Vice Finance Minister Haruhiko Kuroda to 3 companies of Moody’s, S&P in America, and Fitch in Europe on the 26th of last month.

Before S&P, Moody’s announced that it was examining the downgrade of two more steps after the lowering to the fourth grade AA- at the end of last year, and Fitch also is commenting on the possibility of one step falling of sovereign ratings of Japan from AA. The once world high sovereign ratings of Japan is just one step up from Korea (A+) now, after the lowering of ratings by S&P started at the end of 1998.

In the letter, Japan insisted, “Japan has an abundant wealth of foreign reserves, net external assets, and private financial assets that there is no worries of default. Explain the reason of the lower ratings of Japan than those of the countries whose Gross Domestic Product (GDP) and current balance is far less than Japan’s.”

In response to the protest, Moody’s issued a letter on the 14th that the criteria to decide the rate of governmental bonds are the ratio of governmental debts to the income by tax and △practical interest rates, urging, “our ratings is adequate.”

Moody’s announced that it would likely announce the final decision on the rating by May 31st, though it had been expected to cut Japan within this week. In the reply on the 8th, Fitch pointed out, “Japanese finance is going its way to insolvency due to continual recess of business and deflation. The possibility of default is not high, but the speed of reformation is rather slow.”

However, Japanese government cannot ignore the downgrade of sovereign ratings. An official from the Finance Ministry implied its plan to sending another protesting letter, saying, “There was no response to our asking for the detailed explanations of their sovereign ratings decision.”

Young-Ee Lee yes202@donga.com