S&P Cuts Japanese Sovereign Outlook on Escalating Disaster Cost

Standard and Poor's threatened to cut Japan's sovereign rating on Wednesday, noting that the escalating cost of last month's devastating earthquake and tsunami will damage the country's already shaky public finances.

"We revised the outlook on the long-term rating on Japan to negative to reflect the potential for a downgrade if fiscal deterioration materially exceeds these estimates in the absence of greater fiscal consolidation," S&P said in a statement.

"In light of the evolving developments at the TEPCO nuclear power plant, in particular, we regard these projections as uncertain. Much will depend on Japan's political leadership and its ability to forge a political consensus on how to offset fiscal measures in the future," it said.

Japan has struggled since the March earthquake and tsunami. The country is expected to pay more than $300 billion in costs related to damages, which would make it the most expensive in history.

According to a Reuters report, "The credit rating agency, which had cut Japan's rating in January for the first time since 2002, said costs related to the March 11 earthquake, tsunami and ensuing nuclear power plant crisis will increase Tokyo's fiscal deficit above prior estimates by a cumulative 3.7 percent of GDP through 2013."

Japan's Nikkei index gained 1.4% on Wednesday, benefiting from a boost after Japanese and U.S. corporate earnings came in better than expected.