Japan could face a third "lost" decade – Moody's
(Reuters) - Japan could face a third "lost" decade of sluggish economic growth that will leave it struggling to whittle down the heaviest debt burden among developed nations, Moody's ratings agency said on Monday.
It chided the government's failure to meet a self-imposed June 20 deadline for announcing a long-term plan to deal with the country's debts as negative, suggesting it is edging closer to cutting Japan's credit rating.
Japan has been mired in economic stagnation for much of the past two decades, slipping from second to third in the world rankings of biggest economies and building up some $10 trillion in debt as it tried to spur growth through spending.
The March earthquake and tsunami is set to add to Japan's debt load as the government spends on reconstruction.
"While Japan is likely to have a V-shaped recovery later this year from the March 11 earthquake, subsequent economic growth may subside to a lacklustre pace," Moody's said in a statement on its website.
"It is not inconceivable the country would have a third "lost" decade of growth," it said.
Japan's economy has stagnated since an asset price bubble burst in 1990, leaving banks with high debts and an economy in deflation.
GDP growth in the decade up to the global financial crisis in 2008 was about 1.3 percent a year, less than half the 3 percent pace achieved by the United States.
"Moody's view is understandable," said Seiji Adachi, senior economist at Deutsche Securities. "The possibility of another "lost decade" for Japan is growing."
He said higher electricity bills, a rise in the sales tax and the possibility of higher income tax for funding reconstruction after the March disaster would leave Japanese with less spare cash.
"The combination of three burdens is likely to depress economic growth," Adachi said.
Rapid ageing of Japan's society and a decline in household savings are expected to weigh on the economy in the future and place further strain on government finances.
At twice the size of the economy, Japan's public debt is the highest in the industrialised world.
All three major ratings agencies have their fingers poised on the trigger to downgrade Japan's credit status because of the government's failure to come up with a feasible plan to reduce the debt in the years ahead.
Japan's government delayed endorsing plans to curb the public debt on June 20 as some ruling party lawmakers balked at being tied to a deadline for raising the national sales tax and because of uncertainty over when unpopular Prime Minister Naoto Kan would quit, as he had promised.
