Japan

Fitch Ratings Ltd downgrades three of Japan’s largest banks following a cut in Japan’s sovereign debt rating. Fitch said the downgrade was over concerns about Japan’s ability to support its financial sector. It lowered its rating by one notch to ‘A-’ from ‘A’ (the seventh highest on a 22-rating scale) for Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group. The rating reduction, however, comes two month after the trio reported huge increases in annual profits, with Mitsubishi UFJ alone reporting a 68% growth on trading. Together, the three banks have a combined net profit of US$26 billion. The total net profit of all three banks is the largest since the global financial crisis began in 2008. Despite these huge profits, Fitch reduced the three banks’ credit ratings since the improvements weren’t coming from their core business of lending, but from the sales of Japanese Government Bonds that banks rely on since demand for loans remain low. Fitch said it also lowered its rating for Sumitomo Mitsui Trust Bank to the same level as the major banks. “The downgrade...reflects the government’s weakened financial ability to support the banking system as indicated by the downgrade of (Japan’s sovereign rating),” Fitch said in a statement. In May, the agency cut Japan’s credit rating, citing its leisurely efforts at shrinking its mammoth public debt. It downgraded Japan’s long-term rating to “A+” from “AA”, with a negative outlook, noting growing risks for Japan’s sovereign credit profile as a result of high and rising public debt ratios. Fitch previously warned that by the end of this year, Japan’s public debt would stand at 239% of GDP. Fitch last week, however, kept its outlook on the Japanese lenders at stable, which seems to indicate it has no immediate plans to cut their ratings again. The downgrade on Japan’s sovereign rating followed similar downgrades by Moody’s and Standard & Poor’s in the past 18 months.