Fitch cuts Japan's outlook to negative

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.