What is the Japan Credit Rating Agency (JCR)?
The Japan Credit Rating Agency (JCR) is a financial services company that provides credit ratings for corporate debt in Japan. Not only does it provide ratings for debt securities, Japanese companies, and governments, but it also publishes financial and economic research as well as offers expertise for credit risk analysis.
Established in 1985, the Japan Credit Rating Agency now covers at least 70% of the ratings for the financial industry in Japan and is a major financial services company that provides ratings for the medical and educational sectors. Many issuers in Japan’s corporate bond market also use the JCR’s ratings.
Long-Term Rating Scales
The Japan Credit Rating Agency established four different rating scales – long-term issuer, long-term issue, short-term issuer, and short-term issue. A long-term issuer rating scale compares the capacity of an issuer, or an obligor, to honor all of its financial obligations that are due more than a year later.
For a long-term issuer, the rating scale is as follows: AAA, AA, A, BBB, BB, B, CCC, CC, C, LD, and D. AAA is the highest level, whereas D signifies financial obligations that are in default.
A long-term issue rating scale compares the certainty of financial obligations that will be honored. Since they are long-term financial obligations, they refer to obligations that are longer than the duration of one year.
The rating scale for a long-term issue is similar, except that it does not contain a rating for LD, which is a rating for an obligor that is not able to honor a part of its financial obligations but honors its other financial obligations. As a result, the rating scale for a long-term issue is as follows: AAA, AA, A, BBB, BB, B, CCC, CC, C, and D.
Short-Term Rating Scales
The rating scales for short-term issue and issuer are different from long-term issue and issuer. A short-term issuer rating scale compares the capacity of an issuer, or an obligor, to honor all of its financial obligations within a year.
The rating scale for a short-term issuer is J-1, J-2, J-3, NJ, LD, and D. J-1 refers to the highest certainty for an issuer, or obligor, to honor all of its short-term financial obligations. D refers to financial obligations that are in default.
The rating scale for a short-term issue compares the certainty of financial obligations that will be honored. Short-term financial obligations refer to obligations that should be fulfilled within a year. The rating scale is J-1, J-2, J-3, NJ, and D. Once again, LD is not part of the rating scale for issues.
The Japan Credit Rating Agency is officially recognized in many countries around the world. It is recognized in Turkey, Thailand, Indonesia, Hong Kong, and the United States. It is also accredited in various countries in Europe, including France, Belgium, Germany, and Luxembourg. Therefore, the ratings established by the JCR can be utilized in many international markets outside of Japan.
The Japan Credit Rating Agency is also the only rating agency in Japan that is officially recognized as an eligible External Credit Assessment Institution (ECAI) in the European Union (EU) and officially registered in the United States.
In the 1980s, the Japan Credit Rating Agency launched fee-based ratings for yen-denominated foreign bonds, as well as domestic bonds and commercial papers. In 2010, the agency was also registered as a credit rating agency with the Financial Services Agency in Japan.
In recent years, the agency also became an approved verifier for climate bonds certification and signed an initiative for ESG in credit ratings by the UN-supported Principles for Responsible Investment (PRI).
CFI offers the Certified Banking & Credit Analyst (CBCA)® certification program for those looking to take their careers to the next level. To keep learning and advance your career, the following resources will be helpful: