Japan Snaps Back, Moody’s Drops Credit Rating. Huh?

Japan Snaps Back, Moody’s Drops Credit Rating. Huh?


This week Japan became the latest nation to get a downgrade from one of the rating agencies that seem to whizz around the world pronouncing this economy or that unworthy of its previous status. On Wednesday, Moody’s dropped Japan from Aa2 to Aa3 on its rating scale, the equivalent of S&P’s AA- rating of China. Moody’s cited several factors: its estimate of Japan’s gross debt (233 percent of GDP for 2011), the economic impact of the Fukushima nuclear disaster last March, and projections of budget deficits of 7 percent or more running out to 2015.

No, Japan’s bankbooks are not in tippy-top condition right now. But two points are worth making straightaway. For one thing, Moody’s had warned of this move as far back as last May and the bond markets shrugged off the downgrade. For another, the agency’s timing is questionable to say the least, given that Japan is now amid a surprising post–Fukushima recovery.

Only a few months ago, the early reports from Japan after its tsunami and nuclear power disasters made for grim reading. The government was in a dither, the nuclear industry a cesspool of corruption and conflicting interests, and recovery efforts zig-zagged every which way. There was a certain Chinese-fire-drill imagery embedded in the news dispatches and the commentary. Let’s be frank: The faintest whiff of racial prejudice wafted up from the newsprint: Those Asians just couldn’t get it right.

We know more now. And it looks as though Japan is bouncing back from the Fukushima calamity at a rate the rest of the developed world ought to envy. The economy is performing better than expected at this point. Inappropriate ties between the nuclear power industry and its regulators are getting a no-nonsense clean-up, and Prime Minister Naoto Kan’s government is moving with astonishing speed toward a no-nukes alternative energy policy across the board.

Put this kind of substantive change next to America’s post–Katrina mess or the response to the gulf oil spill last summer, and there’s simply no question which nation comes out ahead either administratively or politically. What is the Obama Administration doing a year after we waited nearly three months for BP to stanch the flow of oil on the floor of the Gulf of Mexico? It has just given Shell Oil tentative approval to begin drilling in the Beaufort Sea, adjacent to the Arctic National Wildlife Refuge.

There’s no question Japan has taken a hit from the Fukushima disaster. Economic growth dropped 0.3 percent in the second quarter, the government just reported. This works out to contraction of 1.3 percent on an annualized basis, but there’s more to the story, and Moody’s ought to have taken it all into account: We already knew the second quarter would show a decline, but the fall wasn’t as steep as forecast, and growth is expected to resume on track in the July–September period.

What accounts for this? It’s a good question considering the global environment at the moment—and not least the strength of the yen. The answers may land bitterly for Americans, but they are two: Public spending to clean up the hard-hit northeast of Japan and stimulate the economy, on the one hand, and on the other a build-up of inventories among Japanese manufacturers. The former is sensible policy and the latter an impressive display of corporate confidence.

We now know that there was considerable trickery in the days and weeks after Fukushima erupted on March 11—misleading reports from both Tokyo Electric Power Co., the owner of the Fukushima plants, and the bureaucrats in Tokyo who were supposed to be reporting the danger zones according to wind patterns and where the fallout was headed.

Now Kan (who is expected to step aside as prime minister as early as this week) has acted. Earlier this month he fired three officials from the nuclear bureaucracy, and none was what you would call a down-the-line scapegoat: They included Nobuaki Terasaka, the top man at the Nuclear and Industrial Safety Agency (equivalent to our NRC), and Kazuo Matsunaga, the No. 1 bureaucrat at the Ministry of Trade and Industry, which has been responsible for developing Japan’s huge commitment to nuclear power.

There was skepticism aplenty when it was first reported that Kan had announced his intent to pursue a nuclear-free national energy policy. The Liberal Democrats, shoved from office by Kan’s Democrats in a bitter election defeat two years ago, would never let it pass. Japanese consumers would balk at paying more for electricity generated from alternative sources. These were the main arguments against Kan.

Forget them both. With 37 of the nation’s 54 reactors now off line, the Japanese (who already consume about half the power per capita that Americans use) are proving astute and willing conservationists. Many zones under conservation mandates have already exceeded their targets. Tokyo’s power consumption is down 15 percent from a year ago.

As a correspondent in Japan, all one ever heard was that the Japanese were incapable of change. The hidebound bureaucrats had a grip on everything, and among the political parties “money politics” ruled.

Early on, I bought the thesis, but by the time I left I saw in it a huge irony, one that is evident in spades today. The nation that could never change is proving itself nimble in the face of new circumstances, and that nation famous the world over for its capacity to change cannot seem to find the will to affect much of it—not in energy policy and not in so much else.