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Moody's assigns Aa3 to Osaka City Government's domestic bonds

January 23, 2014

Moody's Japan K.K . has assigned a Aa3 rating to a domestic bond issued by Osaka City Government. The rating outlook is stable. The bond issuances is: €¢ JPY 10 billion Series 8, 0.767% senior unsecured bonds due 2024 RATINGS RATIONALE The Aa3 rating for Osaka City Government reflects Moody's view that, given the close linkage between the government of Japan (Aa3,stable) and the regional and local governments (RLG) in Japan , their ratings should be the same. A key component of Osaka and other RLGs' ratings 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 provide 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 RLG level are uncovered and addressed early, bolstering the probability of extraordinary support. The well-developed equalization system of transfers or 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 any RLG default. Osaka's rating also reflects the city's improving financial position, because of the financial reforms the city has implemented in recent years. Moreover, the rating takes into account the city's low operating margins and high, albeit easing, debt levels, and which are counterbalanced by the city's well-established infrastructure system and its position as Japan's second-largest business center. Osaka is a designated city, one of 20 such major cities in Japan with important economic functions, which are normally performed by prefectures. It has a population of 2.7 million and GDP of JPY 20trillion, according to the most recent statistics.

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Source: EMBIN (Emerging Markets Business Information News)

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