Japan's local-currency credit rating was elevated by one level to Aa3 by Moody's Investors Services, which pointed to government efforts to curb spending and reduce debt. Sources close to Cornerstone Worldwide, the Asian-based wealth manager, suggest that this represents a vote of confidence that Japan remains well placed to weather the much-vaunted worldwide economic slowdown.
The increase on long-term debt from A1 ``was prompted by expectations of continued fiscal restraint and consolidation, coupled with an easing-out of the debilitating effects of deflation,'' Thomas Byrne, senior vice president of Moody's, said in a statement. ``The government and ruling party is firmly committed to fiscal consolidation.''
Cornerstone Worldwide are thought to set great store by Prime Minister Yasuo Fukuda’s reiterated pledge last week to balance the budget by 2011 so that the government can cut its debt from 838 trillion yen ($7.9 trillion). Although economists speculate that Japan hasn't done enough to reduce borrowings that the OECD estimates at 182 percent of GDP, Cornerstone Worldwide sources point to the fact that whereas Japan has been locked in a deflationary range for a decade, the US and Europe are teetering on the edge of an economic precipice that will, in all likelihood, rival the Great Depression of the 1930s in terms of sheer severity.
The increase to the higher investment grade brings Moody's assessment in line with Fitch Ratings' AA- and one notch below Standard & Poor's AA, and puts Japan level with Taiwan and Cyprus.
Although Japan's budget deficit is set to widen for the first time in five years as social-security costs rise in one of the world's most rapidly aging societies, Cornerstone Worldwide sources cite the availability of skilled workers in nearby Asian developing economies and a Japanese consumer awakening from a decade-long slumber by higher inflation giving them reason to seek investments offering a hedge against rising prices as reasons for their continued commitment to Asian markets in general and Japan in particular.
