Sliding prices, massive bad loans at banks and mounting government debt continue to threaten Japan's sovereign debt rating, which could be downgraded within two years, Standard and Poor's said yesterday.
At the same time, progress in tackling the nation's economic woes would support the rating at its current level and could lead to an upgrade of Japan's outlook, said S&P credit analyst Takahira Ogawa.
The rating agency affirmed Japan's AA-minus long-term rating -- the weakest of the Group of Seven rich countries -- and A1-plus short-term local currency ratings, with the outlook remaining negative.
"In the short term, it will be very difficult for Japan to deal with its pressing problems: to overcome deflation; to improve banking sector non-performing loans [NPLs]; and to stabilize fiscal deficits and the debt burden," Ogawa said in a statement.
"If deflation is not contained, banking system NPLs and government finances will deteriorate and undermine the ratings on the sovereign," he warned.
The negative outlook means S&P may downgrade Japan's sovereign rating within one or two years "if ... things go on as they are," Ogawa said later by phone from Singapore.
"But if there are good developments in economic policy, if Japan can come out of deflation [the rating] might stay," he said, adding that the outlook could also be raised.
Japan remains the world's second-largest economy with net foreign assets worth a staggering yen1.46 trillion, a strong current account surplus and a widely-traded currency, S&P noted.
Other positive factors include the nation's highly skilled workforce, world-leading manufacturing industry and high savings rate, the agency said.
But deflation, which hurts corporate profits and deters consumer spending as people wait for prices to fall further, has aggravated Japan's fiscal and financial problems since the middle of the 1990s.
Government debt -- which at around 140 percent of GDP is the highest among industrialized nations -- is expected to grow, while Japanese banks remained buried under huge bad loans.
The government has instructed banks to halve the ratio of bad loans on their accounts by March 2005 and re-evaluate other assets -- a move that prompted regional lender Resona Holdings to ask for a government bailout last month.
S&P is wary about whether the banks will return to health.
"Japan still cannot find its way out of deflation, which is exacerbating the banking sector's non-performing loans problem," it said.
"Deflation is also negatively impacting economic growth, which in turn delays fiscal consolidation," it said.
A change in the Bank of Japan governor last March offered a glimmer of hope that monetary policy may be stretched further to provide help, Ogawa said.
"Nevertheless it is rather difficult for only the Bank of Japan and monetary policy to help Japan come out of deflation," he warned.
"You need policy coordination with the government and the Bank of Japan. Unfortunately the government side is less flexible," he said.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure