Japan's sovereign debt outlook cut to 'negative' by S&P

Japan's sovereign-rating outlook was cut to negative by Standard Poor's as Rosetta Stone Software the nation's reconstruction needs following last month's earthquake will likely add to what's already the world's biggest debt load. The outlook on Japan's local-currency debt rating, at AA-, the fourth-highest grade, was lowered from stable, SP said in a statement today. The company had reduced the rating by one step in January in the first cut since 02. Moody's Investors Service said last month the disaster may bring forward the tipping point for the country's bond market. Today's decision adds to pressure on Prime Minister Naoto Kan, who has yet to detail how the rebuilding will be paid for and how he plans to rein in longer-term fiscal deficits. As public spending increases, revenue will likely decline because of the economic hit from the disaster, with a report today showing retail sales tumbled the most in 13 years last month. Advertisement: Story continues below Japan has repeatedly suffered under poor leadership, but this disaster has made that point even clearer, said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. The government needs to decide how it's going to fund its next reconstruction package. Call for leadership The fiscal outlook will depend on political leadership to manage Japan's debt challenge, SP said in its statement today. The company predicted that rebuilding will cost trillion yen ($228 billion) to 50 trillion yen. Kan has so far submitted what he says may be the first of multiple supplemental budgets, worth 4 trillion yen. Chief Cabinet Secretary Yukio Edano declined to comment on the move, speaking to reporters in Tokyo. He said that policy makers will work to ensure confidence in government bonds. Moody's said Rosetta Stone Language it has no change to the negative outlook for its Aa2 grade, the third highest, on Japan's sovereign rating. The company had made the change from stable in February, citing concern that political gridlock would constrain efforts to tackle borrowing. OECD on taxes The Organisation for Economic Cooperation and Development last week urged Kan's government to at least double a sales tax to per cent and to implement increases as soon as possible. Japan's public debt will reach 4 per cent of gross domestic product this year, according to the OECD, the highest level among nations tracked by the group. The negative outlook indicates that if fiscal rebuilding measures to put a stop to the fiscal worsening aren't introduced, and if the fiscal situation worsens more than SP expects, there's a possibility of a downgrade within two years, SP said in its Japanese-language statement today. SP also said it will be difficult for Japan to achieve economic growth rates much higher than 1 per cent in the medium term because of deflation and the aging population. Economists estimate that Japan's GDP will shrink the most since the global credit crisis in the second quarter, before restoring expansion in the second half of the year. Sales drop Retail sales slumped 8.5 per cent in March from Rosetta Stone Hindi a year earlier, the biggest decline since March 1998, according to a statement by the trade ministry in Tokyo today.