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Will the earthquake make it harder for Japan to borrow money?

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STEVE CHIOTAKIS: The death toll in Japan’s earthquake and tsunami could exceed 10,000. The cleanup and recovery there will be in the tens of billions of dollars. The financial world is keeping a close eye on whether Japan will be able to handle the hefty pricetag. And that means the country needs to maintain its good credit rating, which allows it to borrow money at much more affordable interest rates.

Tom Byrne is a senior vice president for Moody’s in Singapore. And he’s with us to talk about it. Hi Tom.

TOM BYRNE: Good morning.

CHIOTAKIS: Just tell us — is Japan’s credit rating in danger of being downgraded because of this disaster?

BYRNE: Probably not because of this disaster, but we do have a negative outlook because we’re concerned about the government’s ability to fashion an effective fiscal and economic reform response to the debt problems that the government faces.

CHIOTAKIS: We know — there’s a lot of debt in Japan, but then we have this calamitous event that’s not man-made. Do you take things like that into consideration?

BYRNE: We’re trying to put our arms around this to see what the economic consequences are first, and then what the fiscal consequences would be. Our bench mark is the 1995 Kobe earthquake, where the economic damages were about 2 to 2.5 percent of GDP. The fiscal costs were a little more than 1 percent of GDP. If it’s of that order of magnitude, most likely we’re not going to see any severe stress in the government bond market here. So we don’t see this disturbing that equation.

CHIOTAKIS: I would image there’s some PR in this as well. You guys don’t want to look like you’re just piling on. Do you take that into consideration as well?

BYRNE: It’s kind of tough, but we’ll be looking at the various sectors in the economy. And we’re credit analysts, so we have to call it as we see it. Japan’s a big economy. I mean, the output is as big as the combined economies of Germany and Italy. So in the near term, yes there’ll be I think severe economic consequences.

CHIOTAKIS: Tom Byrne, Senior Vice President for Moody’s in Singapore. Tom thank you.

BYRNE: Thank you very much.

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