Moody's Investors Service Inc. said Monday it has assigned a domestic currency issuer rating of Aa2 to the governmental Japan Finance Corp. for Small Business (JFS) and has placed the entity under review for a possible downgrade.
"The rating is based on Moody's belief that the Japanese government will have a strong willingness and capacity to materially support the position of JFS' nongovernment guaranteed long-term bond holders in a manner equivalent to that of holders of the government's direct domestic bonds," it said.
On the possible downgrading, the U.S. ratings agency said, "The credit rating of JFS is constrained by the rating of yen-dominated domestic securities issued or guaranteed by the government of Japan, which is currently under review for possible downgrade."
JFS has close ties with the Ministry of Economy, Trade and Industry and the Finance Ministry and has a strong policy franchise as a major financing arm of small and midsize entities, Moody's said.
The government will continue to give JFS high policy priority because the government perceives that the presence of small and midsize businesses is critical, both in terms of their proportion of the total number of companies and the employed working population, it said.
But "JFS' stand-alone financial fundamentals, particularly its economic capitalization, are very weak," Moody's said.
That is because its asset quality is being structurally exposed to substantial credit risk arising from its lending to its targeted small and midsize businesses, whose financial fundamentals have been under an unprecedented degree of downward pressure from the currently severe operating environment, it said.