Japan’s sovereign debt outlook has been downgraded to negative from stable by US ratings agency Fitch.
The agency fears the cost of rebuilding the north-east of Japan following March’s devastating earthquake and tsunami could leave its public finances in a fragile state.
With Japan’s external debt already running at about 200 per cent of its annual GDP, a costly clean-up operation, including shutting down the Fukushima Daiichi nuclear power plant, could put the government’s funding under extreme strain.
"Japan's sovereign credit-worthiness is under negative pressure from rising government indebtedness," said Andrew Colquhoun, head of Fitch's Asia-Pacific Sovereigns team in a statement.
"A stronger fiscal consolidation strategy is necessary to buffer the sustainability of the public finances against the adverse structural trend of population ageing."
Fitch’s move follows a downgrade by fellow rating agencies Standard & Poor’s and Moody’s. All three now rate Japan’s outlook negative.
Fitch affirmed its AA- local currency rating for Japan, though – the same level at S&P but one notch below Moody’s, which rates it an Aa2.