The Aa3 rating assigned to Nagoya reflects the Moody's view that given
the close linkage between the government of Japan (Aa3, stable) and the
regional and local governments (RLGs), their ratings should be the same.
A key component of the ratings of Nagoya and other RLGs is the extremely
high likelihood that in the event of a liquidity crisis the Japanese
government would step in to provide immediate assistance. The country's
highly centralized system of local government as well as Japan's unique
history of risk socialization provides clear evidence that this support
would be forthcoming.
The considerable level of oversight and supervision of the RLGs
exercised by the central government ensures that any credit issues at
the RLGs are uncovered and addressed early, thereby bolstering the
probability of extraordinary support.
The well-developed equalization system of transfers, or the Local
Allocation Tax (LAT) system, assures that no individual entity's
revenues would fall to a level that would require emergency assistance.
This feature is a clear indication of the government's strong policy
stance towards preventing a default at any of the RLGs.
Nagoya's ratings also reflect its higher debt burden compared to most
designated cities rated by Moody's, offset in part by its strong
liquidity position, and a wealthy local economy, which underpins a
strong own-source revenue base.
The principal methodology used in this rating was Regional and Local
Governments published in January 2013. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
City of Nagoya is one of 20 designated cities in Japan and has a
population of 2.2 million. Its local GDP is JPY12 trillion, according to
the most recent statistics.
Wall Street Transcript
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