巴黎人娱乐城

巴黎人娱乐城-Hong Kong/Singapore-24 July 2006: 巴黎人娱乐城 today affirmed Japan's Long-term foreign and local currency Issuer Default Ratings ("IDRs") at 'AA' and 'AA-' (AA minus), respectively. At the same time, the agency affirmed the Short-term IDR at 'F1+' and the Country Ceiling at 'AAA'. The Outlook on the ratings is Stable.

While affirming the rating, the agency indicated that despite the improvement in macroeconomic conditions, Japan's sovereign credit profile remains encumbered by debt ratios that continue to expand. "Stronger GDP growth and the end of deflation have yet to transform Japan's government debt dynamics," said James McCormack, head of Asia Sovereigns at 巴黎人娱乐城. The agency forecasts consolidated general government debt will increase to 181% of GDP at end-2006 (calendar year), the highest of any rated sovereign.

Exceptionally low interest rates have effectively reduced Japan's interest service burden such that it compares favourably with much less heavily indebted sovereigns. 巴黎人娱乐城 believes that, while higher interest rates are not necessarily a threat to sustained economic growth, they will raise government interest payments, posing risks to the fiscal outlook as well as debt refinancing costs, and underscoring the need for further fiscal adjustment.

Public investment has already been scaled back and pension reforms undertaken in 2004 confirm the authorities' commitment to improving public finances. In 巴黎人娱乐城's view, however, these initiatives and plans for further reform will not be sufficient to reduce the debt/GDP ratio until 2008. The government objective is to achieve a primary balance (excluding interest payments) by the early 2010s and reduce the debt/GDP ratio thereafter.

巴黎人娱乐城 suggested that a more aggressive fiscal consolidation was constrained in part by political considerations, as spending cuts would likely need to focus on social security programmes. "Japan's aging population makes it much more difficult to curtail social spending in areas such as health care," added Mr. McCormack. "Tax increases may be equally unappealing, especially if they come after spending cuts, as is currently planned."

Private domestic demand has led economic growth in Japan since 2003, and 巴黎人娱乐城 expects continued strength from consumption and investment. Improvements in the labour and real estate markets, together with the end of consumer price deflation, support household consumption. Investment spending is driven by a much more robust corporate sector, which is no longer plagued by excess labour, debt and productive capacity, as it was in the 1990s. With banks' balance sheets having strengthened considerably in the last three years, they are able to meet renewed demand for credit, and loan growth is now positive.

巴黎人娱乐城's Special Report, entitled "Is Japan's Debt Problem Getting Better?", which reviews the prospects for reducing the government debt burden in light of the more promising economic outlook, will be available shortly on the agency's public website .

Contact: James McCormack, Hong Kong +852 2263 9925/ james.mccormack@fitchratings.com; Brian Coulton, London +44 20 7417 4097/brian.coulton@fitchratings.com

Media Relations: Ching-Yuen Lock, Singapore, Tel: +65 6238 7301; Sylvia McKaige, Singapore, Tel: +65 6336 0095.