Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Japan downgraded over debt

By Aaron Smith, staff writer

NEW YORK (CNNMoney) -- Standard & Poor's downgraded Japan Thursday because it expects the country's "fiscal deficits to remain high in the next few years" as it continues to deal with problems like debt, deflation and an aging population.

Wall Street had a muted reaction to the news at the start of trading on Thursday, though the mild gains were enough to push the S&P 500 to 1,300 for the first time since 2008.

The rating agency lowered Japan's long-term credit ratings to AA-minus from AA, and said the outlook is "stable." S&P noted that the county's fiscal pressures are offset somewhat by its "strong external position, and the flexibility afforded by the yen's international role."

The report mentioned one other positive -- Japan's gold and foreign exchange reserves of more than $1 trillion "are second only to China's."

However, Japan is still grappling with "persistent deflation" and a "fast-aging population," according to the report. More importantly, S&P stated that Japan's debt load will continue to grow into the next decade.

"The downgrade reflects our appraisal that Japan's government debt ratios -- already among the highest for rated sovereigns -- will continue to rise further than we envisaged before the global economic recession hits the country, and will peak only in the 2020s," the rating agency said.

S&P said that the Japanese government "lacks a coherent strategy" for dealing with these challenges, which will cause its "fiscal flexibility to diminish" going forward.

Going forward, S&P expects Japan's annual general government deficit to fall to 8% of gross domestic product by 2013, down from 9.2% in fiscal year 2010.

By comparison, the U.S. annual deficit is 10.6% in fiscal year 2010, according to S&P's calculation.

But Japan's total debt burden is much greater than that of the United States. Japan's debt is equal to 115% of its economy; the U.S. debt is equal to 71% of its GDP, according to S&P.  To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.93%3.87%
15 yr fixed2.99%3.03%
5/1 ARM3.27%3.20%
30 yr refi4.03%3.93%
15 yr refi3.08%3.07%
Rate data provided
by Bankrate.com
View rates in your area
Find personalized rates:
Index Last Change % Change
Dow 17,813.39 1.20 0.01%
Nasdaq 5,116.14 13.34 0.26%
S&P 500 2,088.87 -0.27 -0.01%
Treasuries 2.23 -0.01 -0.49%
Data as of 5:02pm ET
Company Price Change % Change
Pfizer Inc 32.87 0.90 2.82%
HP Inc 12.64 -2.00 -13.66%
General Electric Co 30.36 -0.30 -0.98%
Bank of America Corp... 17.44 -0.03 -0.17%
Freeport-McMoRan Inc... 8.10 -0.20 -2.41%
Data as of Nov 25


Looks like the Magic Kingdom is lacking some sparkle. Disney's cable channels have lost millions of subscribers in recent years. More

Brazilian police arrested a prominent senator and billionaire CEO for interfering in the investigation of Petrobras, which has pushed Brazil into recession. More

Watsi crowdfunds donations to cover healthcare costs of those in need. And it's seeing a surprising trend: micro-donations via the popular Chinese social networking app, WeChat. More

Some of the coolest toys this year are from small businesses. Here are 10 hot toys that just might be a smash hit this holiday season. More

Facebook just increased the amount of paid time off new dads working at its international offices can take. More