TOKYO - Japan return to recession and a slower than expected in the first quarter of economic growth are negative for its credit rating, Investors Service Moody said, warning that a delay in the recovery could justify monetary and fiscal stimulus further.
The triple blow of March earthquake, tsunami and nuclear crisis has led to the Japan in the recession and led to a surprisingly deep contraction of 0.9% in January and March, said Moody was negative for the rating of the Japan and rendered more urgent for the Prime Minister Naoto Kan compile a second supplementary budget.
"Spending for Reconstruction and repair will be eventually lead to a rebound of economic growth later this year and in 2012," Moody said in a news release Monday.
"But the extent of the loss of performance and revenues caused by the earthquake may already have lowered the trajectory of future growth of the Japanese economy, stifling long-term growth rate of the Japan, which is currently about 1 %"He said.
While the shock of energy shortages will be temporary, the risk of Japanese companies permanently losing share of the global market due to current supply chain disruptions is more harmful, Moody said.
"If the rise of the Japanese economy should be lower than expected or delayed fully, by the Ministry of finance and the Bank of the Japan, additional actions may be necessary", the rating agency said in a statement.
Japan is facing the worst crisis since the second world war after the earthquake of magnitude 9.0 and a deadly tsunami battered the northeastern coast, leaving approximately 25,000 dead or missing and crippling a nuclear power plant on March 11.
The economy contracted in January-March to almost double the pace expected by the markets and expected to decline once again in the second quarter as supply chain disruptions and shortages of power knock out plant.
ADDITIONAL ACTION
The Bank of the Japan has facilitated the days of monetary policy after the earthquake, but has stood pat since then on the point of view - shared by many economists - that growth will resume to ease constraints fall autour when it offers.
But the Central Bank has expressed its willingness to ease policy further if the damage caused by the earthquake are greater than anticipated and threatens to return of the Japan to a moderate recovery.
The Government, for its part, Parliament adopted a first emergency budget of 4 billion yen ($48 billion) for the disaster relief to the immediate and is now considering a second supplementary budget for reconstruction, which Moody said probably "will be much larger than the other."
Kan noted that the second supplementary budget would be large enough, while the Minister of economy Kaoru Yosano said reconstruction can cost up to 15 billion yen.
But any progress by compiling the second supplementary budget would be slow as Kan need the cooperation of the opposition, which controls the upper House to pass necessary legislation by the Parliament.
Other budgetary perspectives uncertainty of overshadowing Japan is the extent to which the Government will share the burden of the Tokyo Electric Power (9501.T) passive increase related to the earthquake, Moody said.
The public debt of the Japan, to double the size of the economy of $ 5 trillion, is the largest among major industrialized countries, limiting the room for additional fiscal stimulus and triggering warnings from rating agencies.
But legislators are reluctant to increase taxes, particularly the politically sensitive sales tax, for fear of scaring voters away, even while the cost of the reconstruction of quake adds to the burden of expenditure of social protection in ageing fast society.
In February, Moody has warned that it could be reduced CSR Aa2 of Japan - the third highest rating - if the Government did not for the development of the tax reform overall to fix the country's threadbare finance.
(Yen Japanese $1 = 81.710)
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