Standard & Poor’s on Thursday downgraded Japan’s sovereign debt for the first time in nine years, citing a growing budget deficit and aging population. The move was seen by some as a shot across the bow to other developed nations with growing debt burdens. The ratings agency trimmed Japan’s sovereign debt rating by one notch to AA- from AA, saying that the country’s government lacked a “coherent strategy” to tackle government debt ratios that have risen faster than expected and could peak in the mid 2020s. Japan’s debt is already among the highest of all developed nations; government debt now totals almost 200 percent of the country’s annual gross domestic product (GDP) and more than twice that of the US. Japan’s debt in 2010 amounted to USD10.6 trillion. S&P analysts said that the Japanese economy has remained the same size in nominal terms as it was in 1992 while public debt has tripled.

Julian Jessop of Capital Economics told UK newspaper The Telegraph that Japan’s rising debt, “Is potentially a much bigger story than any default in Greece.” Japan is the world’s top creditor with USD3 trillion in net assets overseas. A hike in bond yields could force Japanese banks, pension funds and life insurers to repatriate large sums of these overseas assets to cover losses in their home market. Such an outcome could cause asset prices to fall worldwide.

S&P analysts have previously said that the US’ top AAA rating could be reevaluated should deficits continue to rise. However the ratings agency’s managing director and chairman of the sovereign rating committee, John Chambers, told Dow Jones Newswires that the US is in a more favorable position than Japan. Government debt levels in the US are much lower than those in Japan and the dollar remains the world’s No. 1 reserve currency.

Asian markets on Friday mostly declined on the news. Japan’s Nikkei Stock Average dropped 1.1 percent, the South Korean KOSPI dipped 0.3 percent while Hong Kong’s Hang Seng index retreated by 0.7 percent. China’s benchmark Shanghai Composite Index, however, rose by 0.1 percent.

Strong exports helped South Korea’s current-account surplus rise in December to its fourth-largest level on record. The current-account surplus, which provides a broad gauge of the country’s trade with the rest of the world, came in at USD2.11 billion in December, up from USD708.7 million the previous year. December’s figure represented the 10th consecutive month of rising surpluses as exports benefited from rebounding global demand.

The full year surplus came in at USD28.2 billion on the back of strong exports of semiconductors and automobiles, but down from the 2009 surplus of USD32.8 billion. Economists told the Wall Street Journal that robust exports of goods including ships, autos and electronics will lead to a continued current account surplus in 2011, though the size of the surplus would shrink as an improving domestic economy will boost the country’s imports.

The final language of a broad free trade agreement (FTA) between the US and South Korea has been set, paving the road for Congress to begin debate on the deal in March. The final agreement includes supplemental legal language on auto tariffs. President Obama in his State of the Union speech on Tuesday called for lawmakers to approve the FTA with South Korea as soon as possible. However, some congressional leaders remain unhappy that the FDA doesn’t address South Korean bans on US beef that were put in place after mad cow disease was discovered in the US.

The US International Trade Commission in 2007 estimated that the original version of the FTA would raise US exports by USD10 to USD11 billion annually, while raising US imports from South Korea by USD6.5 to USD7 billion.