However, weighed down by a combination of economic and political risk factors, the country now lies 25th in ECR’s global rankings, on a score of 68.5 out of 100 – one step below fast-riser South Korea.
Fitch does not distinguish between Japan and Korea, rating both A+, but Moody’s has Japan higher on Aa3 (Korea A1) as does S&P (Japan AA-, Korea A).
However, Japan’s one-place rise in the rankings this year is hardly a cause for celebration. The sovereign has shed 1.4 points since January and a substantial 13.5 since 2010, one of the largest falls of any G10 nation, with the exception of Italy.
ECR contributors have become more concerned this year about aspects of the political environment, including information access/transparency, institutional risk, and the regulatory and policy environment. Several structural risk factors have deteriorated, and downgrades to bank stability, monetary policy/currency stability and employment/unemployment have also occurred.
Moreover, while the scores for Japan’s economic-GNP outlook and government finances have improved a little in 2012, their absolute values of 4.1 and 3.2 (out of 10) continue to warn of high risks.
This is evident not only from a 10%-of-GDP budget deficit pushing up government debt, but also the latest figures showing a large export decline, precipitated by a strong yen and weakening world trade growth.
As predicted, exports to China, the US and eurozone have all diminished lately, undermining corporate tax receipts.
Strip out the artificial boost to the economy from earthquake-reconstruction efforts, and Japan’s economy is in a more fragile state and riskier, overall, than South Korea and 23 other sovereigns worldwide.
This article was originally published by Euromoney Country Risk.