Text-s&p report: japan growth to slow as reconstruction boost fades

(The following was released by the rating agency) SINGAPORE (Standard & Poor's) Oct. 2, 2012--The rebuildingefforts in response to the 2011 earthquake and tsunami have beengiving

Japan's economy a boost, but the reconstruction-fueledrecovery is set to run out of steam, Standard & Poor's RatingsServices said in a report published today. Despite the

uncertain global economic outlook, Standard &Poor's Ratings Services expects Japan (AA-/Negative/A-1+) topost around 2% real GDP growth in fiscal 2012 (ending March 31,2013). But

medium-term prospects are less rosy, with growthfalling to 1.6% in fiscal 2013 and below 1% on average in fiscal2014, in our base-case view. We see public spending on reconstructing

Japan'snortheast-the site of the March 2011 earthquake, tsunami, andnuclear disaster--as the main drivers for growth in fiscal 2012,as well as lift from low base effect. Private-sector

investmentfor reconstruction will also provide support. On the other hand,we expect private consumption to remain weak. Net externaldemand will also likely undermine growth because of the

weakglobal economy and Japan's move to reduce its reliance onnuclear energy, which has significantly increased total importsof oil and natural gas. In our view, a sales tax hike--to 8%

from April 1, 2014, andto 10% from Oct. 1, 2015, from the current 5%--will trigger aninitial spike in consumer spending and support fiscal 2013growth to a degree, but falling contributions

fromreconstruction will counter this. We then expect slower growthin fiscal 2014 and 2015 as the higher sales tax takes hold anddampens consumer spending. Overall, we see no significant

improvement in the mediumterm growth prospects for Japan, unless the global economyrecovers and the government effectively addresses deflation byboosting domestic demand to reduce the

negative GDP gap.Moreover, over the longer term, the country's shrinking andaging population will undermine the country's growth prospectsunless the natural birth rate rises or the

country boostsimmigration. Keywords: MARKETS RATINGS JAPANGROWTHREPORT