May 3, 2011

Power an Issue for Japan: Moody’s

Uncertainty over energy supply brings fiscal uncertainty

Disruptions in its power supply and the potential for government assistance for Japan’s Fukushima power plant operator, coupled with uncertainty surrounding the cost, could translate to additional problems for the fiscal health of the country, said Moody’s Investors Service on Tuesday. Japan is already suffering from massive debt and facing the still-unknown costs of rebuilding in the wake of its triple catastrophe of earthquake, tsunami, and nuclear disaster.

In a Reuters report, Tom Byrne, senior vice president of Moody’s, said that although estimates of the cost of disaster relief and rebuilding in the wake of the March 11 earthquake and tsunami currently ran around 3-5% of GDP, "there is uncertainty attached to that." Byrne overseas sovereign credits for Asia and the Middle East.

He was quoted as saying, "A big source of uncertainty is from the power supply situation and that has not stabilized. There could be further costs."

He also pointed out that the government has not been specific on the topic of any assistance it may provide to Tokyo Electric Power, the company that operated the now-defunct Fukushima Daiichi plant, and added that the liability "could migrate to the government balance sheet and be reflected in budget deficits or government debts."

In February, Moody’s had warned it might drop Japan's credit rating of Aa2, its third highest, if the government failed to put together a comprehensive tax reform; the country’s public debt is nearly double its economy of $5 trillion. And last week, as reported by AdvisorOne, Standard & Poor’s did lower the outlook on Japan’s local currency debt rating, its fourth highest at AA-, to negative.

To read more about Japan’s energy situation, go to AdvisorOne.com.

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