S&P sees oil, China risks in Japan and South Korea

The triple threat of a slowing Chinese economy, higher US interest rates and a surge in oil prices posed risks for Japan and South Korea, rating agency Standard & Poor's said on Sunday.
"There will be a reduction of the growth rate if everything comes together," said Takahira Ogawa, director of Asia-Pacific sovereign ratings, speaking about South Korea's economy on the southern island of Cheju.
"But this is a kind of cyclical issue, not a structural issue. South Korea has ability to absorb those kind of external nature," he said.
Ogawa was speaking on the sidelines of an annual meeting of the Asian Development Bank, where discussions have centred on China's efforts to cool rapid expansion.
The effects on Japan and South Korea - the region's biggest and fourth-biggest economies - have been a particular concern. Japan's exports to China jumped 33 percent last year, while Korea's rose 50 percent.
But while Ogawa said a slowing in exports was likely, a slowdown in China alone may not have huge negative impacts on Japan's and Korea's growth rates, adding that a hard landing in China very unlikely.
"I think South Korea's medium-term outlook is quite robust," he said.
He said he was not sure to what extent Korea's fiscal position would be affected, but said its sovereign ratings would not be affected even if all the risks hit the country at the same time.
NORTH KOREA MOST SERIOUS: S&P has rated South Korea's foreign currency debt at A-minus since July 2002. Its published outlook for the rating is stable.
Ogawa said the most serious concern about South Korea's ratings outlook was communist North Korea, labelled as a member of the "axis of evil" by the United States because of its nuclear weapons programme.
The Korean peninsula was divided 50 years ago in a war that ended without a peace treaty. The Koreas have worked for reunification but there has been little progress.
"Even if there is a peaceful solution, which is our main scenario, the South still has to support the North economically, which could strain the fiscal position of government," Ogawa said.
OIL RISKS: Ogawa also saw political risks for Japan, where an election for parliament's upper house is due in July.
But he said a recent rise in oil prices to a 21-year high may pose a bigger threat by pushing up consumer prices and forcing the Bank of Japan to reverse its loose monetary policy.
That could lead to a jump in Japanese interest rates, a worry for Japan, which needs to finance a huge fiscal deficit.