Japan's Outlook Cut on Earthquake Costs

Standard & Poor's cut Japan's sovereign rating outlook on Wednesday from stable to negative, warning that a credit-rating cut will follow if the country cannot raise additional revenues.

Reuters reported that the ratings agency left Japan's sovereign rating itself unchanged at AA-, the country's lowest among ratings agencies. However, S&P also cited the massive expenses generated by the quake disaster in March as leading to the additional cut in ratings without some action on the part of Tokyo, such as an increase in taxes. In a statement, the company said, "If there are no revenue enhancing measures such as tax increases, we expect the central and local governments to bear most of this cost."

Japan's public debt already stands at $10 trillion, which is double the size of its economy. S&P said that reconstruction costs that could go as high as 50 trillion yen ($613 billion) could drive that total substantially higher. However, NaotoKan, Japan’s prime minister, has thus far been unable to take decisive action thanks to his own unpopularity and the strength of the opposition, which so far has managed to thwart fiscal reform by holding a majority in the upper house of parliament.