JAPAN NOT OUT OF WOODS

Moody’s says debt a ‘huge problem’

Moody’s Investors Service remains vigilant over Japan’s ever-deepening fiscal problems, a senior official of the U.S. credit rating agency said in Tokyo on Thursday.

Vincent Truglia, managing director and joint head of the sovereign risk unit, told a media luncheon that the worsening ratio of the nation’s public debt to gross domestic product is a “huge problem.”

“Borrowing is enormous. . . . It is far from clear how future governments will deal with this,” he said, repeating Moody’s view that Japan’s debt-to-GDP ratio will soon be the worst in the industrialized world.

But he said Moody’s does not expect an imminent crisis in Japan’s public-sector debt and will not automatically downgrade the country’s credit ratings.

“If we do see the actual buildup of the debt . . . then we clearly have to look at those ratings at that point of time,” Truglia said. “But we’re not there yet and there are still lots of options that are open, so we’ll continue to monitor the situation.”

Speculation had been rife in financial markets that Moody’s would downgrade Japan’s sovereign debt rating from the present Aa1.

The agency said in mid-February that it had put long-term Japanese government bonds on review for possible downgrade. In November 1998, it downgraded the nation’s sovereign debt rating to Aa1, one step below its top-notch triple-A rating.

The combined long-term debt of central and local governments is expected to reach about 645 trillion yen at the end of fiscal 2000, equivalent to 129.3 percent of GDP, according to the Finance Ministry. Fiscal 2000 started April 1.

Truglia said the question of when Japan will achieve a self-sustaining economic recovery is a major factor in determining rating policy.

But he evaded a question about whether the economy will begin returning to stable growth led by private-sector demand in the latter half of fiscal 2000, as suggested by Finance Minister Kiichi Miyazawa.

“I’m going to borrow a very common Jewish expression. That is, ‘From his lips to God’s ears,’ ” Truglia said.