TOKYO, Jan 13 (Reuters) - Standard & Poor's Ratings Services affirmed Japan's sovereign debt ratings on Tuesday, saying its net external asset position was robust and its financial system was relatively sound. S&P said it had affirmed Japan's long-term sovereign rating of AA, and short-term rating of A-1-plus, for both local currency- denominated and foreign currency-denominated debt. The outlook remains stable, it added.
"The ratings on Japan reflect our opinion that the country has a robust net external asset position, a diversified economy, and a relatively sound financial sector," Standard & Poor's credit analyst Takahira Ogawa said in a statement. Ogawa said such strengths were moderated by factors such as large fiscal deficits and outstanding debt, as well as uncertainty over the impact of an ageing population.
Japan relies heavily on the public sector to finance its huge borrowings, and outstanding public debt is expected to total about 780 trillion yen ($8.7 trillion) by the end of next March, or roughly 150 percent of the nation's gross domestic product, the highest among major industrialised nations.
Japanese government bonds surged on Tuesday as a 4.8 percent slide in the benchmark Nikkei share average stoked demand for safe haven government debt, with the benchmark 10-year JGB yield falling 4.5 basis points to 1.240 percent.
Japan's financial sector has remained in relatively good shape compared with those in the United States and Europe, S&P said.
"Standard & Poor's does not expect large-scale bank recapitalizations by the government, notwithstanding some deterioration in bank capital ratios," Ogawa said. Japan is the world's largest net external creditor in absolute terms, with a projected $2.4 trillion in net assets at the end of 2008, S&P said.
Japan's high savings rate contributes to the absorption of government debt, keeping real interest rates in check, it added. ($1=89.40 Yen) (Reporting by Masayuki Kitano)