S&P downgrades outlook on Japan's debt

Ratings agency changes Japan's long-term debt outlook from stable to negative. Aftermath of earthquake and tsunami could slow economy and boost debt, Standard and Poor's says.

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    Owner of the Yamari Inn Toshiaki Kikuchi (left) and his family look out from the untouched second floor where they hope to stay and rebuild their business, March 23, 2011, in Soma, Fukushima prefecture, Japan. On April 26, 2011, S&P downgraded its outlook on Japan debt, saying the earthquake and its aftermath could worsen Japan's fiscal picture.
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Uncertainty over Japan's fiscal situation as it rebuilds after last month's earthquake and tsunami prompted Standard & Poor's to change its outlook on the country's long-term debt rating from stable to negative, the ratings agency said Wednesday.

Standard & Poor's stressed that its sovereign credit ratings on the world's No.2 economy remained unchanged, but said the March 11 disasters cast some doubt over the country's economic performance and future debt load.

"Much will depend on Japan's political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future," the agency said.

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Standard & Poor's projected that reconstruction costs could range from 20 trillion yen ($244.7 billion) to 50 trillion yen ($622.8 billion), increasing the country's fiscal deficits above prior estimates by 3.7 percent of gross domestic product through 2013.

If Japan's fiscal deterioration outpaces those revised estimates — and the country does not boost revenue through tax increases or other means — Standard & Poor's said its long-term sovereign rating could be downgraded from its current 'AA-.'

The company also affirmed its short-term rating at 'A-1+.'

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