Japan recovery takes hold, but debt downgrade looms

Wednesday, 1 June 2011 00:18 - - {{hitsCtrl.values.hits}}

(Reuters) - Japan’s economy offered more signs of recovery from the deadly March earthquake on Tuesday, but Moody’s ratings agency warned both growth and government action may fall short of what is necessary to bring Tokyo’s ballooning debt back under control.

Industrial output rose 1 percent last month after a record plunge immediately after the magnitude 9.0 quake and a tsunami it set off, and companies said they planned to further crank up output in May-June, bringing it close to pre-disaster levels.

The upbeat outlook spurred talk that the world’s third-largest economy could be poised for a V-shaped recovery after the disaster knocked Japan back into its second recession in three years and a third downturn in a decade.

Manufacturers’ optimism, however, failed to impress Moody’s which on Tuesday put Japan’s sovereign debt on a watch for a possible downgrade, citing huge costs of dealing with the quake’s aftermath and concerns that the government’s response to economic challenges may prove inadequate.