The rating agency cited concerns that the Japanese government would face difficulty providing a clear plan for paying for reconstruction, which S&P estimates as ranging from Y20,000bn ($245bn) to Y50,000bn.
Japan's fiscal position was a concern even before last month's earthquake and tsunami. In January, S&P cut Japan's credit rating for the first time since 2002 to AA-from AA. The following month, Moody's changed its outlook on Japan's Aa2 rating, from "stable" to "negative".
The AFP reports that the S&P said that after paying for recovery efforts it expects Japan's deficit to rise to 145 percent of its GDP in the financial year ending in March of 2014. Its previous forecast was 137 percent. Japan, adds the AFP, is struggling with the "industrialized world's biggest debt, at around 200 percent of GDP, after years of pump-priming measures by governments trying in vain to arrest the economy's long decline."
Despite the news, Japan's Nikkei actually ended the day in positive territory, up 1.4 percent. The Wall Street Journal's Lisa Twaronite explains:
[Japanese government bond] shrugged off the outlook cut because they're "immune to rating downgrades as Japan's fiscal problem has been well known to the market participants and will not force domestic investors to change their investment plans," said RuiXue Xu, a rates strategist in Tokyo at RBS Securities Japan Ltd., in a note to clients Wednesday.
Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.