Moody's On Japan Debt

The WSJ this morning:

Japan Bond Rating on Review For Possible Upgrade
July 5, 2007

SINGAPORE -- Moody's Investors Service yesterday gave its seal of approval to Japan's efforts to rein in its massive debt, placing on review for possible upgrade the Japanese government's A2 rating for domestic securities.

The ratings firm, which downgraded Japan's domestic debt rating by two notches in May 2002 to its current level, said a turning point had been reached on government debt, which is now on an improving trajectory.

"Sustained improvement, albeit gradual, in Japan's macroeconomic performance has helped support Japan's fiscal consolidation," Moody's Senior Vice President Thomas Byrne said.

Markets were little moved by the rating action, in part because Standard & Poor's and Fitch Ratings have higher ratings on Japan.

S&P upgraded its rating on Japan to AA in April, and Fitch has a local-currency rating for Japan of AA-minus.

"This is a symbolic event," said Yasunari Ueno, chief market economist at Mizuho Securities. "The Japanese fiscal situation is on the course of improvement. However, other ratings agencies have already raised their outlook for [Japanese government bonds], so this event is no surprise in direction, but a little surprising in timing," coming late compared with other rating agencies, he said.

Moody's usually takes as long as three months to make a decision on a rating that is under review.

Mr. Byrne said Moody's would consider "whether fiscal restraint and current revenue trends are sustainable so as to ensure fiscal consolidation over the medium term."

Moody's also will review its AA2 local currency debt and issuer ratings on the metropolis of Tokyo for possible upgrade.