Fitch has joined the other two ratings agencies – Moody’s and Standard & Poor’s – in cutting its outlook on Japan’s sovereign debt to negative from stable.
It warned the massive cost of March’s earthquake and tsunami and the soaring bill to clean-up after the nuclear disaster that followed would add to the strains on Japan’s already shaky public finances.
The downgrade caused the yen to fall against the dollar and the euro.
“Japan’s sovereign credit-worthiness is under negative pressure from rising government indebtedness,” said Andrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team in a statement.
“A stronger fiscal consolidation strategy is necessary to buffer the sustainability of the public finances against the adverse structural trend of population aging.”
Analysts played down any potential market impact of the latest downgrade, saying it simply affirmed the widely held view of the challenges facing Japan.
Fitch singled-out the potentially huge costs of cleaning up after the Fukushima plant disaster as a serious risk.
“There is considerable downside risk for the public finances from the still-unknown cost of cleaning up the Fukushima nuclear plant, while delays in restoring power supplies could lead Fitch to revise down its 2011 growth forecast from 0.5 percent.