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Credit downgrades strike Japan Inc.

TOKYO -- Credit rating agencies have taken a dim view of many Japanese companies of late, with a global economic slowdown and a flurry of scandals perceived as eroding corporate finances and earning power.

Japan's Rating and Investment Information lowered ratings 11 times between the start of the year and Tuesday, up from 10 in the entire first half of 2015. The agency is on track for its busiest half-year of downgrades since it issued 17 in July-December 2013.

Credit ratings are a measure of a company's creditworthiness. The highest rating is AAA, while ratings of BB or below are considered speculative grade. Moody's Investors Service has its own scale, with Ba1 through Ba3 considered equivalent to BB.

Many companies with resource-related operations have cropped up on the downgrade list. R&I's rating on Mitsui O.S.K. Lines dropped from BBB+ to BBB on May 6. The maritime shipper booked an extraordinary loss of 179.2 billion yen ($1.64 billion) for the fiscal year ended in March related to structural reforms, mainly in its dry bulk shipping business.

Though R&I sees these measures paying off this fiscal year, the container shipping business is expected to remain in the red. "There are still no signs that main factors behind flagging freight rates" will be resolved anytime soon, R&I wrote.

Moody's Japan lowered its ratings on oil company Inpex and Nippon Steel & Sumitomo Metal by one notch each to A2 and Baa1, respectively.

Scandals were to blame for many downgrades. Standard & Poor's cut its rating on Toshiba's long-term debt from B+ to B Friday. The agency noted progress on restructuring following the electronics maker's book-cooking but expects profitability to take time to recover.

S&P downgraded Mitsubishi Motors by two notches to BB- Monday. Damage to the automaker's brand and social credibility may harm its ability to generate profit in the future, the agency said.

Regional banks hit hard by negative interest rates also have suffered downgrades. R&I lowered ratings on Yamanashi Chuo Bank, Bank of Saga and Hyakugo Bank in April.

Rating upgrades have grown scarcer as well. R&I had raised credit ratings just 11 times this year as of Tuesday, compared with 19 times in the first half of 2015.

Negative interest rates have lowered market rates, making fundraising easier, said Toshihiro Uomoto, chief credit strategist at Nomura Securities. Rating downgrades apparently have had little immediate impact on access to money, aside from a few exceptions.

But some businesses are angling for a rating bump now with an eye toward future investment in growth. Mitsubishi Heavy Industries is working to improve its finances by cutting costs through steps such as consolidating facilities. The company, now rated A- by S&P, is aiming for a AA rating, President Shunichi Miyanaga said.

(Nikkei)

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