BBC

Friday, 23 February, 2001, 10:05 GMT Japan loses blue chip status

Stock prices are close to a ten year low and there are hints that the prime minister might resign. By the BBC's Charles Scanlon from Tokyo

The Japanese government has responded angrily to a move by the American ratings agency Standard & Poor's to downgrade its credit worthiness.

The move could put additional pressure on Japan to restructure its economy and to tackle its soaring government debt.

But with Prime Minister Yoshiro Mori barely clinging on to power, Japan could be entering a period of political confusion.

The Finance Minister, Kiichi Miyazawa, was blunt in his response - he said the decision to downgrade Japan's credit rating was a mistake.

Others ministers joined in the attack one of whom described it as meddling in Japan's internal affairs.

Another said it would cause few problems because the debt is largely bought by Japanese and not foreign investors.

But the downgrade from a triple A rating to double AA plus reflects growing international concern at Japan's mountainous debt burden and its growing political paralysis.

The rating imposed by the agency helps determine what interest rate the government will pay on its debt and typically speaking, the lower the rating, the higher the interest paid.

Standard & Poor's said the government was very reluctant to address the country's fundamental economic problems.

The debt accumulated from attempts to kick start the economy with public spending through ten years of stagnation and recession.

The financial markets have given up hope of meaningful reform under the current administration of Yoshiro Mori.

Stock prices are close to a ten year low - and hints that the prime minister might resign were greeted with an immediate surge in the value of the yen.

Mr Mori could be removed as early as next month as his support in the country falls below 10%

But the governing coalition is at a loss in its search for a replacement.

Ambitious politicians are reluctant to take over before elections in July which are likely to result in a resounding defeat.

It is a recipe for political chaos and uncertainty that will continue to unsettle investors.

-- Rachel Gibson (rgibson@hotmail.com), February 23, 2001