Moody’s: Earthquake costs could accelerate Japanese debt crisis

THE earthquake and tsunami in Japan could bring forwards a crucial “tipping point” for market confidence in its sovereign debt, according to Moody’s Investor Services.

Ratings agencies have so far held off reviewing the status of Japan’s debt, which S&P recently downgraded, saying that it will take time for the fiscal consequences of the tragedy to become clear. The country’s debt-to-GDP ratio is forecast to exceed 200 per cent this year.

Moody’s said it understood that Tokyo will have to suspend tackling its debt in order to provide relief to the millions left homeless by the disaster.

But the agency’s Thomas Byrne said: “A tipping point may be reached at some point if the market loses confidence in the soundness of government finances... The earthquake may have shifted such a potential tipping point a bit forward.”

S&P agreed that there would be no immediate effect on Japan’s rating but said: “The additional costs will add to the already existing fiscal weaknesses.”

Around 90 per cent of Japan’s public debt is owned by domestic savers, many of them pension funds, which has so far enabled it to keep interest rates low despite its high debt load.