26/08/2011
Disaster-struck Japan is the latest nation to be downgraded by credit agencies as it struggles with a mountain of debt and the country tries to rebuild after the devastating trio of earthquake, tsunami and nuclear disaster.
Moodys, one of the three main credit agencies has downgraded Japan from Aa2 to Aa3 but has described the outlook as stable, despite the ongoing problems.
Japan has the third largest economy in the world but the highest level of public debts compared to other developed nations. The country is also still in the pits of a recession with the last three quarters showing a shrinking in the economy, as the tsunami hit just as Japan was trying to find its way out of the financial doldrums.
However, many Japanese consumers have cut back on their spending since the disaster which has meant the government receives less revenue in taxes than it had budgeted for, leaving an even bigger hole than previously anticipated.
The Fukushima nuclear power plant is also continuing to contribute to the delays in the country's recovery as the supply of electricity is patchy and the government has asked every household to try and cut back on what they use. Financial analysts have voiced concerns that an insufficient power supply could deter would-be investors in either the private or public sector.
Political instability has also taken its toll on the country with five prime ministers in as many years, with the current leader expected to quit within the next week, taking the total to six. However, despite the turmoil the government has said it will wipe out all debts and have a surplus in the economy within eight years.
Moodys have cast doubt that this will start to happen anytime soon describing the economy as 'failing to achieve a growth rate strong enough to steadily reduce the budget deficit.'
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