Japan's debt, already the highest in the industrial world, will keep rising, a senior Moody's official said after being called to parliament to defend the decision to rate the world's second-biggest economy a riskier borrower than Botswana.
"We expect the debt to rise relative to gross domestic product and government revenue, no matter what scenario you lay out," Moody's senior analyst Tom Byrne told parliament, known as the Diet.
The first parliamentary appearance in Japan by Moody's officials was an unusual twist in Japan's efforts to head off further ratings cuts that analysts say may threaten investment and slow a recovery.
The campaign has failed to deter Moody's, Standard & Poor's and Fitch. Moody's latest downgrade -- a two-notch cut to "A2" -- came after Vice Finance Minister for International Affairs Haruhiko Kuroda sent letters demanding the three companies explain why their ratings are so low.
Japan's frustration over losing its top-notch triple-A rating boiled over during yesterday's hearing, with Finance Minister Masajuro Shiokawa saying he was "very dissatisfied" with the rating.
"The companies are looking very carefully at the state of the economy, but I don't see the link between that and the rating of government bonds," Shiokawa said.
Moody's has said Prime Minister Junichiro Koizumi isn't doing enough to reduce the nation's debt, which the government estimates will swell to ?693 trillion (US$5.5 trillion), equal to 140 percent of gross domestic product, by March.
"To us, debt does matter," Byrne said yesterday. He added that Japan's economy will underperform for the next one to two years. In one bright note for Japan, he said there's a less than 50 percent chance the rating will be reviewed again in the next two years.
The parliamentary hearing was an opportunity for ruling party politicians to score points with voters by attacking Moody's. As a strategy to avert further punishment to its rating, it will probably fail, one analyst said. If Japanese officials "are looking to intimidate the agency, it's a strategy that is more likely to backfire," said Peter Petas, an analyst at CreditSights Inc, an independent credit research firm.
Some opposition lawmakers used the hearing as an opportunity to criticize the government's economic management and reaction to the ratings cuts.
"Japanese government bonds are really weak, and a lower rating is appropriate," said Koki Ishii, a member of the main opposition Democratic Party of Japan. If debt at state-run corporations and other government-guaranteed liabilities was included, national debt would be about ?1,100 trillion, almost twice the Finance Ministry estimate, he said.
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