巴黎人娱乐城

巴黎人娱乐城-Hong Kong-09 December 2014: 巴黎人娱乐城 has placed Japan's 'A+' Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN). The issue ratings on Japan's unsecured foreign and local currency bonds have also been placed on RWN, as has the sovereign's Short-term IDR of 'F1+'. At the same time, 巴黎人娱乐城 has affirmed the Country Ceiling at 'AA+'.

巴黎人娱乐城 will look to resolve the RWN during the first half of 2015 in light of the next government's fiscal plans and updated fiscal and economic projections.

KEY RATING DRIVERS

The RWN reflects the following factors:

- The Japanese government's decision to delay a consumption tax increase originally scheduled for October 2015 until April 2017 will meet a negative sensitivity identified in 巴黎人娱乐城's May 2014 sovereign credit review of Japan, unless broadly equivalent and permanent fiscal measures are announced in the forthcoming budget, which 巴黎人娱乐城 considers to be unlikely. The delay implies it will be almost impossible to achieve the government's previously-stated objective of reducing the primary budget deficit to 3.3% of GDP by the fiscal year April 2015-March 2016 (FY15). It additionally implies a greater risk to the government's longer-term objective of eliminating the primary deficit and stabilising the government debt to GDP ratio by FY20, unless a future government is willing to impose a tighter fiscal squeeze over FY15-FY20 than previously envisaged.

- The key sovereign rating driver is Japan's high and rising government debt ratio. 巴黎人娱乐城 estimates Japan's gross general government debt (GGGD) to GDP ratio will reach 241% by end-2014, up from 184% at end-2008. The 57pp rise in the ratio would be the second-highest over the period in the 'A' or 'AA' category after Ireland (+67pp), and the fifth-highest in the OECD after Greece, Ireland, Portugal and Spain. Moreover, 巴黎人娱乐城's analysis suggests Japan's high indebtedness and low nominal growth make the debt dynamics relatively fragile to shocks to baseline assumptions.

- 巴黎人娱乐城 views the delay in the second-stage consumption tax as increasing risk to the baseline projection by strengthening doubts over the authorities' commitment to the objective of fiscal consolidation. The agency's belief that risks around the baseline have increased is more relevant for the RWN than the changes in the projections themselves.

- The planned consumption tax increase alone would have been insufficient to reduce the primary deficit to a debt-stabilising level. Total incremental revenue from the two-stage 5pp doubling in the rate to 10% from 5% is estimated at around 1.5% of GDP, compared with 巴黎人娱乐城's estimate for the primary budget deficit of 7.4% of GDP in 2013 and 6% in 2014. 巴黎人娱乐城 estimates a primary budget deficit of about 2% would be required to stabilise the debt ratio under baseline assumptions for growth and interest rates.

- The lack of a clear, credible medium-term plan for achieving the authorities' medium-term fiscal objective of eliminating the primary deficit by FY20 weighs on the ratings. The authorities have said they aim to set out a medium-term fiscal plan in summer 2015. The only other substantive, concrete proposal from the outgoing coalition government (which stands a strong chance of being re-elected to a renewed four-year term) goes the other way - a reduction in the corporate income tax rate to below 30%, which the International Monetary Fund (IMF) estimates could cost an additional 0.5-1pp of GDP, although the authorities think the measure could be made revenue-neutral by simultaneously broadening the base.

- The Japanese sovereign's exceptional funding flexibility supports the ratings, despite the weaknesses and vulnerabilities elsewhere in the public finances. The ten-year Japanese government bond (JGB) yield was 0.43% on 4 December 2014 and has averaged 0.57% year-to-date. The average maturity of the JGB stock was 7 years and 9 months at end-September 2014, having gradually risen from 5 years and 1 month at end-March 2005 (although the average maturity of the total stock is closer to 4 years on 巴黎人娱乐城's calculation). 巴黎人娱乐城 half the JGB stock is held in the broader public sector, which may lower the potential for a self-fulfilling loss of confidence in the JGB market.

- Sovereign funding flexibility rests on the Japanese private sector's apparently strong "home bias" in investing its massive stock of savings. The household sector's financial surplus rose to 3.9% of GDP in the year to June 2014, from a recent low of 1.1% in 2008. The Japanese domestic nonfinancial sector had a stock of financial assets worth 660% of GDP at end-June 2014, up from 564% at end-2008.

- Private-sector savings support Japan's external finances, which are a credit strength. The sovereign had USD1,269.1bn in foreign reserves at end-November 2014, underpinning a net sovereign foreign-currency creditor position worth about 28% of GDP at end-2014 on 巴黎人娱乐城's projection, stronger than the 'A' or 'AA' medians. 巴黎人娱乐城 projects the Japanese economy as a whole to hold a net asset position in debt-like instruments worth about 62% of GDP by end-2014. The broad international investment position was worth 67.7% of GDP at end-2013, up from 62.4% at end-2012.

- The Bank of Japan (BoJ) eased policy on 31 October 2014, stepping up its pace of annual base money expansion to approximately JPY80trn from JPY60trn-70trn and lengthening the average maturity of its JGB purchases to about 7-10 years from 7 years. The BoJ's proposed purchases would represent just over half of gross JGB issuance for FY14 (JPY155.1trn). The BoJ's credibility and status as issuer of one of the world's main reserve currencies endows the authority with a high degree of policy flexibility and provides further strong support to sovereign funding conditions. Nonetheless, monetary easing is not sustainable indefinitely and if pushed too far could eventually risk a loss of public confidence in the BoJ's commitment to basic monetary stability and severe negative consequences for sovereign funding conditions (although 巴黎人娱乐城 does not currently see a high risk of such a negative scenario materialising).

- Japan's macroeconomic performance more broadly is a credit and rating weakness. The BoJ's aggressive easing underscores the challenges the authorities face in getting the economy onto a path of sustainably stronger real and nominal GDP growth via the strategy of "Abenomics". Five-year average growth of 1.7% per year over 2010-2014 was about half the 'A' or 'AA' range medians of 3.2% apiece. However, the five-year average is pushed higher by the 4.7% bounceback in 2010 from a 5.5% contraction in 2009. Estimates from 巴黎人娱乐城, the authorities and from the IMF peg potential growth lower at between 0.5% and 1% per year, hampered by a shrinking working-age population. Persistent weak real and nominal GDP growth has undermined Japan's public debt dynamics. The GDP deflator contracted by an average 0.5% per year over 1992 to 2013. Nominal GDP projected at JPY486.6trn in 2014 is not far above the JPY483.7trn in 1993.

- Japan's ratings benefit from strong sovereign credit fundamentals including a rich, highly productive economy by global standards; high levels of governance; high-quality core public institutions; and deeply-entrenched social and political stability.

RATING SENSITIVITIES

The RWN reflects the following risk factors that may individually or collectively result in a downgrade of the ratings:

- A lack of alternative measures in the forthcoming FY15 budget sufficient to offset the impact of the delay in raising the consumption tax on medium-term debt sustainability

KEY ASSUMPTIONS

The ratings are sensitive to the following assumptions:

- The Japanese sovereign's funding conditions are assumed not to deteriorate to the extent that government debt dynamics would become explosive

- The global economy is assumed to perform broadly in line with the projections in 巴黎人娱乐城's December Global Economic Outlook; in particular, it is assumed China does not experience a systemic economic and financial crisis, and that the eventual raising of interest rates by the US Federal Reserve does not trigger regional or global financial instability.

- Regional and global geopolitical risk does not escalate to a severe level; in particular, the ratings assume no outright severance of economic or diplomatic relations between China and Japan.

Contact:

Primary Analyst
Andrew Colquhoun
Senior Director
+852 2263 9938
巴黎人娱乐城 (Hong Kong) Ltd.
2801, Tower Two, Lippo Centre
89 Queensway, Hong Kong

Secondary Analyst
Thomas Rookmaaker
Director
+852 2263 9891

Committee Chairperson
James McCormack
Managing Director
+44 20 3530 1286

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com.

Additional information is available on

Applicable criteria, "Sovereign Rating Criteria" dated 12 August 2014 and "Country Ceilings" dated 28 August 2014, are available at .

Applicable Criteria and Related Research:



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