“The ratings agency Standard & Poor’s lifted its outlook on Japan on Wednesday, saying that growth prospects have improved for the country, the world’s second-largest economy,” write Todd Zaun in today’s Wall Street Journal.

“The improved outlook follows signs that Japan’s two-year-old economic recovery is gaining momentum and widening beyond exports, so far the main factor powering growth.”

“S& P raised the outlook for its rating on Japan’s sovereign debt to stable from negative, citing the benefits of corporate restructuring and a decline in the bad loans held by banks, which have weighed heavily on the economy. The enhanced outlook was the first from a Western credit agency after three years of downgrades.”

” ‘Several related factors are raising Japan’s growth prospects,’ Takahira Ogawa, an analyst at S.& P., said in a statement, noting efforts by companies to increase their profitability and the Bank of Japan’s supportive monetary policy.”

“Despite the improved outlook, S.& P. stopped short of raising its rating on Japan’s bonds because of the large national debt, now about 160 percent of gross domestic product. S.& P. kept its rating on Japan’s bonds at AA-, its fourth-highest grade but the lowest among the Group of 7 industrialized nations.”

“Two years ago, Japan’s ministry of finance criticized the three big Western rating agencies – S.& P., Moody’s and Fitch – after they cut the country’s credit ratings. The ministry dismissed the idea that the country would default on any debt.”

“On Wednesday, Japan’s top spokesman made clear that Japan still disagrees with its S.& P. rating.”

” ‘The rating is still too low and doesn’t accurately reflect Japan’s real economic condition,’ the chief cabinet secretary, Yasuo Fukuda, told reporters.”